Intraday Market Thoughts

EU Leaders get an Agreement, EURUSD Crosses 1.40

by Kyle Morrison
Oct 27, 2011 7:19

EU leaders get an agreement, German CPI expected to fall back, UK CBI sales set to remain depressed, Bank of Japan rate decision, US Q3 GDP due next. New Premium trades are around.

So the EU summit concluded and we now have some numbers. Europe wide bank recapitalisations have to be done by mid 2012 with a requirement for a tier 1 capital ratio of 9%, which it is estimated will cost around 100bn.

The Greek haircut talks between banks on EU officials for PSI after being deadlocked have been agreed with a voluntary 50% haircut, to get Greeces debt down to a more manageable 120% of GDP by 2020, while the EFSF has approval to be leveraged up to around 1trn but final details wont be known until the end of November. The problem of Italy and future measures to boost growth remain unresolved.

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With all the drama surrounding the events in Brussels going on we still have the small matter of the European economy and the lack of growth and todays release of German CPI figures it will be hoped prompt the ECB next week to loosen monetary policy in an effort to try and re-energise growth, or at least take the pressure of Italian bond yields. Expectations are for flat CPI for October with the year on year figure slipping back to 2.5%.

Eurozone economic confidence figures across all sectors is also expected to remain depressed. Industrial confidence expected to slip further to -7, while economic confidence is expected to slip to 93 from 95.

In the UK yesterdays CBI business optimism and industrial orders plunged to the lowest levels since 2009 with business optimism hardest hit at -30. Totals retail sales arent likely to offer much comfort either with expectations of -16, highlighting the so-called chilling effect on the UK economy mentioned by PM Cameron earlier this week.

The Bank of Japan once again left interest rates unchanged as the yen once more made a new post World War 2 high against the US dollar yesterday, while expanding their asset purchase program by 5 trillion yen to try once again to push the yen lower.

In the US the latest Q3 GDP numbers are due out and this could well be a key number if it misses the quite high expectations the market has of it.


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