Daily Market Report 13/09/12

Yesterday the German constitutional court ratified Mario Draghi’s unlimited bond buying proposal. With this endorsement from the plan’s fiercest critics, the Euro climbed to its highest level of the last four months.

If the initial announcement, which came last Thursday, spelt out the ECB’s commitment to keeping the Eurozone together, then this decision surely underlined it. The markets strengthened on this news as the stress on the troubled economies was, for now at least, alleviated.

The decision, though undoubtedly shows a greater level of unity amongst the Eurozone, it also shows an amplified level of control that central banks of the past have not possessed. We are expecting the finance ministers to lock horns over the next few days in Nicosia, with the overwhelming subject being Spain’s request for funding.

Keen to stem the flow of unconditional funds, Merkel and many of her Northern European counterparts are insistent on some policy changes, whilst Spanish Prime Minister Rajoy, already on the defensive, believes his country has already done enough to warrant credit.

Meanwhile in the US, the Dollar continued its slide on the Federal Open Market Committee’s first day, and with a big day ahead today, investors are questioning at what point it will see solid ground. The majority of analysts are expecting a third phase of quantitative easing to be announced, and with the decline already in motion, many believe this to be the markets in motion as they price-in the rumour.

Dissimilar to the previous two chapters in America’s tale of easing, there is also the consensus is that Mr. Bernanke will neither place a time scale nor limit on the bond and treasury-buying scheme. This strategy coupled with the prediction that the Fed will maintain record low interest rates until 2015, means that the greenback could drop off yet further.

Easily overlooked in the face of such crucial times for the global economies, the UK’s unemployment claims unexpectedly fell by 15,000, positive results as sterling rose against the Dollar but small news in comparison.

With the plethora of key economic indicators released later today in the US, rarely before have we seen these quotidian events hold such importance on global markets.

Key Announcements Today:

  • 8.30am – CHF – SNB Monetary Policy Assessment
  • 1.30pm – USD – PPI m/m: Expected to rise to 1.1% from 0.3%
  • 1.30pm – USD – Unemployment Claims: Slight increase expected to 370k
  • 5.30pm – USD – FOMC Statement
  • 5.30pm – USD – Federal Funds Rate: Expected to remain at 0.25%
  • 7.00pm – USD – FOMC Economic Projections
  • 7.00pm – USD – Federal Budget Balance: An expected fall to -$156.1B
  • 7.15pm – USD – FOMC Press Conference

See previous Daily Market Reports