Yesterday euro-bloc governments announced that the European
Stability Mechanism is fully operational and ready for its first customer, though
finance ministers suppressed thought that such a requirement for aid was
imminent.

Yesterday euro-bloc governments announced that the European
Stability Mechanism is fully operational and ready for its first customer, though
finance ministers suppressed thought that such a requirement for aid was
imminent.

With the news similar to that which Mario Draghi announced
last week, one may have expected further euro strength, but alas, the ambiguity
of reason saw the euro decline against many of its major peers. One key
contributor was the poor German production data which showed a contraction of 0.5%
from the last month, illustrating that even the euro zone’s powerhouse is
struggling.

The ESM announcement did however have a positive effect on
Spanish bond yields. Believed to be the closest to applying, Spain saw its 10-year
notes drop further below 6%, suggesting that the lower borrowing rates will
allow the nation to continue without immediate necessity of a bailout.

Meanwhile in the UK, despite not receiving any alarming
data, sterling lost ground against almost all of its counterparts, including
the euro. Perhaps aligning themselves with expectations, analysts predict that
manufacturing data this morning will show 0.6% shrinkage from previous
encouraging growth.

With UK officials keen to retain the nation’s AAA status,
George Osbourne divulged details of the economy’s deficit reduction plan,
should he be re-elected. Targeting a cut on spending and welfare, the next
budget must be delicately poised to find the equilibrium between credit
worthiness and growth.

Today the UK takes the best of some humdrum data, with
manufacturing and trade balance information released in the morning. Following
sterling’s declines yesterday, the pound’s negative sentiment could already be
priced in at market level; resultantly further drops could be assuaged or even
reversed.

Key Announcements
Today:

• 08.30am – EUR – ECB President Mario Draghi to speak
• All Day – EUR – ECOFIN Meetings
• 09.30am – GBP – Manufacturing Production m/m: -0.6%
  expected, down from 3.2%
• 09.30am – GBP – Trade Balance: increased deficit to -8.3bn
• 15.00pm – GBP – GDP 3-Month Estimate

See previous Daily Market Reports