The European Shares Fell image

On Tuesday, July 24th, European shares fell after weak German factory data showed no signs of improvement in China, sending the euro towards two years of decrease.

Germany’s manufacturing sector is expected to shrink due to the European debt crisis’ effects. The Markit PMI index, which tracks the manufacturing sector, fell to 3.3 from 45.0 in June, below the expected 45.3.

“The German manufacturing sector has been one of the key elements of the euro zone recovery and to see it contracting at this rate is really quite worrying,” said Chris Williamson, chief economist at the data compiler Markit.

Today Spain’s 5-year government bond yields increased above 10-year yields for the first time since June 2011, as markets believe that the risk of a big credit event is higher. 10-year yields on Spanish bonds were 6 bps lower at 7.436%, while 5-year yields were up 2 basis points at 7.45%. German bond yields also increased after ratings agency Moody’s cut its outlook for the country.

“Given the trade and financial linkages that Germany has with a shaky euro zone that news possibly shouldn’t come any surprise,” said Mike Ingram, market analyst at BGC Partners.