After leaving the wreckage of Ireland in it’s wake, the Euro debt crisis tornado has weaved it’s path to other shores as expected over the last couple of days, and indeed equities closed closed down sharply in Spain and Portugal last night as fears grew that Europe’s sovereign debt panic would lead to the next bailout centred on the Iberian peninsula. The Euro has slipped ever further against the Dollar (less so against Sterling), and has now plummeted by over 4 cents since Monday morning to 1.3300, it’s lowest level in two months. This is despite yesterday’s news of a better than expected eurozone flash PMIs for November. The surveys show that the pace of economic activity picked up over recent weeks, mainly on the back of a stronger performance from France and Germany. Both the services and manufacturing PMI’s came in ahead of forecasts, with the manufacturing index hitting its highest level since September 2008.
If anything this perfectly illustrates the growing tension between core Eurozone members that appear to be on a path to strong recovery (Germany in particular), and their prolonged willingness to prop up weaker members in the name of economic monetary union. The Euro, both as a practical and political concept, is certainly having bigger questions asked of it than at any point in it’s history.
Last nights release of the minutes of the Fed meeting for November show siginificant divisions on the policy commmittee and huge uncertainty over the impact of it’s $600bn QE extension. Yesterday’s minutes admmitted that any currency effects would be ‘unwanted’ but but that QE2 could put ‘downward pressure on the dollar’s value in foreign exchange markets’. Overseas counterparts may raise a wry smile at such comments given accustions levelled at the Fed in attempting to devalue the greenback to bolster the fortunes of its exporters. Much of the divergence in views were over the effect of additional QE on inflation, with concern equally distributed between the risks of deflation, and those of over-inflation.
In the UK we have had no revision this morning to the GDP figures for Q3, reaffirming growth of 0.8%. In the US this afternoon, we get the release of October Durable Goods orders and personal income and spending data for October. Those are expected to show some reasonable growth over the month. Alongside these releases, new home sales for October and the final University of Michigan consumer confidence survey for November. Put together, these data will give a fairly solid reading over the momentum that the economy had at the start of the fourth quarter.