The week ends with risk appetite as the EU Summit ended on a positive note as European politicians came to terms to help reduce Italy’s borrowing costs and ease the rules on using bailout funds to support Spanish banks..
- A breakthrough at the EU Summit helps spark a strong risk rally, with EUR and commodity currencies benefiting.
- Yields in Italy and Spain sliding sharply back.
- One of the main topics – How to get Italy’s 10-year yield to 4% or lower?
- Second main topic – How to avoid Spanish bank recapitalization from impacting Spanish overall debt burden.
- Eurozone leaders agree to restructure Spanish bank bailout deal.
- Bailout funds will be injected directly into banks, will not add to Spain’s debt levels.
- Bailout loans to Spain will no longer be granted seniority status.
- No extra conditions for bailout funds to purchase bonds (just have to maintain their EU debt and debt commitments).
- Italy set to take advantage of this to lower its borrowing costs.
- The change to Spain’s bailout deal will come only after the eurozone sets up a single banking supervisor to be run by the ECB – no longer 17 different bank supervisors..
- Europe moves towards a banking union.
- The EU Summit Eurozone leaders trying to break the link between weak banks and governments.
Global Macro Data:
- Global demand/growth shows some improvement on Euro-zone crisis is badly needed as it seeps into real economy.
- Japan’s industrial production down 3.1% in June, though unemployment rate improved to 4.4% and household spending was up (4.0% y/y).
- German retail sales fall 0.3% in May after sliding 0.2% in April (forecasts were a 0.1% increase).
- Eurozone private loans down 0.1% (forecast was for a 0.3% increase), though M3 rises 2.9% y/y.
- UK index of services flat vs forecast of 0.3% gain.
- Last week we had other poor macro data – China’s manufacturing PMI, Germany’s Manufacturing PMI, ZEW Economic Sentiment and IFO, US Philly Fed index point to weakness in the world’s industrial powers.
- Next week – Tankan Manufacturing from Japan, Manufacturing and Services PMI’s from around the globe (US, UK, Europe, China, India, etc), employment data from the US and Canada.
- Plus RBA, ECB, and BOE rate decision.
- Will ECB lower rates, will BOE restart bond purchases?
Nick Nasad is a macro economist, market analyst, and educator; and one of the main contributors to FXTimes.com – provider of News, Analysis, Education, Videos, Charts, and other trading resources.
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.