EUR finds just a hint of support
The Euro’s orderly decline appears to have found a little support throughout yesterday and overnight, fluctuating either side of the 1.30 mark against the Dollar at intervals throughout the last 24 hours, though having plummeted so far this may be expected and could prove to be a temporary respite. The ratings agency Standard & Poors have signalled the possibility of a credit rating downgrade for Portugal, citing economic pressures and increased risks to the governments creditworthiness, and whilst Eurozone debt concerns continue to destabilise financial markets, ECB President Trichet remains resolute, yesterday commenting that he struggles to believe how the financial stability of the Eurozone is actually being called into question. Unfortunately the events of the past few weeks across financial markets would suggest there are a number of people that would query such statements, though he does have tomorrow’s post ECB meeting press conference in which to make some slightly more credible assertions on current events.
Nothing EU politicians say or do is having any stabilising impact currently. The weekend publication of the details of the Irish EUR85bn bail-out (which was actually a net EUR67.5bn after Ireland’s own contribution) have come and gone, as has the news that Greece has been given an additional 4.5years (to 2021) to cut its budget deficit to 3% of GDP. Markets remain gripped by the prospect that (i) contagion will not only engulf Portugal (a formality for most) but possibly Spain and Italy too, stretching the European Financial Stability Facility to breaking point and (ii) that Ireland will be unable to repay its huge debt burden and eventually default. For all the Euro’s woes however Germany is still growing very strongly. The latest Ifo business climate index has surged to fresh all-time highs. Confidence within the country is growing as higher wages kick in and unemployment falls, which in turn is boosting domestic demand. The EUR’s latest decline will help export competitiveness further, though unsurprisingly markets are turning a blind eye to this at the moment.
The second half of this week sees the release of new fewer than 17 PMI indicators, starting with China last night recording marginally better than expected results. The UK has followed suit this morning, though the Eurozone has come in a touch lower than expected. The arrival of such data all at once will give a decent steer to how the recovery is progressing, and may serve to provide a wider context within which to view the events that have dominated the past month. Today, US data see the start of the payrolls partial releases with the ADP Employment and Challenger Job Cuts surveys preceding the ISM Manufacturing Index. All will be used to tighten up forecasts for Friday’s payrolls report with a stronger ADP reading likely to see the whisper number move closer to 200,000 than the current consensus of 145,000. EUR decline takes a breather (temporarily): Current Indicative FX Rates (mid-market):
GBP/EUR: 1.1950 GBP/USD: 1.5630
GBP/AUD: 1.6220 GBP/JPY: 130.90
EUR/USD: 1.3070 USD/JPY: 83.75