Daily Market Report 01/10/12

September was a month of two halves for the euro. The first period brought with it an Indian summer, as the euro rallied on news that Draghi’s ECB would not allow a collapse. The subsequent weakening that befell the shared currency appeared to be the realisation that the economic slowdown was greater than anticipated.

Whilst the rally was fleeting, the euro’s deterioration, one fears, is not. Sluggish growth and huge debts have left governments and European leaders on opposing sides in the debate as to how the nations can best recover. The troika have been pressing tough austerity measures to lasso the runaway debt problems, however as Spanish and Greek governments try to minimize the burden to their populations, and to their re-election chances, fiscal stringency is an unpopular option.

Greece is inching towards a third bailout, and having more or less aligned itself with the necessary bailout requirements, should Spanish bond yields increase further, Mariano Rajoy is likely to finally take the funding that the ECB has been imploring the troubled nation to apply for.

The dollar, as the world’s reserve currency, and the yen, benefitting from Japan’s net-creditor status are two currencies that are likely to see extended strength as the euro woes continue.

High unemployment and somnolent growth are issues that will take time to fix, whilst there will undoubtedly be periods of strengthening for the euro from announcements either in Europe or the US, these upturns will be ephemeral.

The sterling’s performance showed signs that it was creating distance from the euro, albeit without exceptional economic data to match. This week holds important indicators in determining the health of the UK economy and the direction of the pound going forward. Firstly Fitch’s ratings decision this morning, followed by manufacturing, construction and services indices, released during the first three days. Whilst on Thursday the MPC releases its own statement, although no change is expected.

 

Today’s Key Announcements:
  • Italian, French, German & Spanish PMI – All returned positive results, except Spain who saw a minor reduction
  • 09.30am – GBP – UK PMI: Expected to remain the same
  • 09.30am – GBP – Mortgage Approvals: Increase expected
  • 09.30am – GBP – Consumer Credit
  • 10.00am – EUR – Unemployment rate: expected to rise to 11.4%
  • 15.00pm – USD – ISM Manufacturing PMI: minor increase expected
  • 17.30pm – USD – Fed Chairman Bernanke to speak

See previous Daily Market Reports