Reform rush in Greece and Italy!

In a hurry to prevent the debt crisis further damaging their countries, the new Greek and Italian technocrat leaders are busy forming their new governments today. The appointment of Lucas Papademos and Mario Monti as the respective countries' prime ministers initially filled investors with optimism that under new leadership these countries in crisis would now be able to implement the required budgetary reforms and prevent the EU debt crisis spreading further.

These hopes however faded, while European markets which opened in the green on Monday lost ground throughout the session. Eurostoxx 50 Index dipped 1.33%, while the German DAX Index dropped 0.95%

Optimism towards Italy’s unity government led by Mario Monti declined following the Italian debt auction, which showed that investors remained cautious about Monti's capability to tackle the debt problems. Italian 5-year yields have been sold at 6.29%, which although failing to meet the 5.32% price reached in October was below the 7.73% all time highs reached last week at the peak of the Italian debt crisis.

In Greece Lucas Papademos received the Troika inspectors on Monday, whose main objective is to ensure that the new Greek PM is capable to carry out the reforms required by the EU, IMF and ECB in order to obtain the sixth, 8.000 million euro tranche of aid.

The strife to ensure the future of the euro

Angela Merkel spoke today in Liepzig about the necessity of tightening the European political union and the sacrifices Germany still has to make to ensure the survival of the euro. The Chancellor stated that the ongoing EU crisis is the toughest hour for the continent since the World War Two hardships. According to sources she suggested introducing changes to the Lisbon Treaty that would allow for greater integration, which confounds the speculation that she might support a divided euro.

Economic data

  • In Germany this morning GDP (QoQ) increases to 0.5% in 3Q, GDP (YoY) up 2.5%, which is likely to have a positive effect on the EUR today.
  • The UK National Statistics release today the Consumer Price Index (YOY), (MoM) and Core CPI (YoY) for October. CPI (YOY) is predicted to increase its previous level of 5.2% above the consensus level of 5.1%.  CPI (MoM) is also predicted to increase from its previous market level of 0.6% above the consensus level of 0.2%. Core CPI (YoY) excluding products such as food and energy is predicted to increase from its previous market position of 3.3%, which is 0.1% above the consensus level. All this information released should have a positive impact on GBP today.
  • The UK House Price Index released by the Department for Communities and Local Government (YoY) is predicted also to increase from the previous position of -1.3%,which will have a positive impact on GBP, but is still considerably below the consensus level at 1.7%.
  • US Retail Sales data will be released today at 13:30 GMT. We expect the indicator to have slowed down in October, rising only 0.1%. While unit car sales continued to pick up, their increase was much smaller in October than in September (1.2% vs. 7.9%). In addition, nominal sales of gasoline stations are likely to decline as gasoline prices decreased 3½% in October. Finally, same store sales indexes also showed a decline in October, signalling weaker sales of items such as clothes and general merchandise.
  •  US Producer Price Index, which is to be released today is expected to increase from the previous market level of 6.9%, a figure already 0.6% above the consensus level, which is expected to have a positive impact on USD today.
  • EMU The Gross Domestic Product (YoY) released by the Eurostat is predicted to fall from the previous level of 1.6%, which will have a negative effect on EUR but will still be above the consensus level of 1.4%.  Also EMU ZEW Survey - Economic Sentiment is predicted to continue its rising position up from the previous level of -51.2 above the consensus level at -52.5%.

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