Good news for the UK but dangerous week for the Euro zone
Industrial production and manufacturing in the UK rebounded after a fall in June. Industrial production increased by 2.9% in July, the largest month-on-month jump in 25 years. Manufacturing also beat expectations with 3.2% growth in August. These releases come as a welcome boost for Q3 GDP.
Following last week’s official announcement of ECB bond purchases, this week is also likely to provide major headlines that could affect the future of the Euro and a possible recovery from the debt crisis which is almost three years old and weighing on the world economy. In Germany, the High Court is set to rule on the legality of the euro zone’s permanent financial rescue fund. It is expected to give it a green light but if the court were to rule against the ESM, it would have a devastating effect on bond and currency markets, pushing the 17-nation currency zone deeper into turmoil by casting doubt on future rescues of the heavily-indebted southern member states.
Additionally, Troika representatives are set to meet with the Greek PM Samaras today. Samara’s coalition members recently refused 11.5 billion Euro of spending cuts over worries that it would hurt the Greece’s poor. The Troika are set to receive Greece’s austerity measures on Thursday, which it must approve in order for Greece to receive the next 31 million Euro bailout payment. Both the Troika acceptance of the Greek austerity measures and the German court approval of the ESM would be seen as steps to improve the Euro and prevent the breakup of the single currency, and would therefore be Euro positive.
US jobs growth slowed sharply in August setting the scene for the Fed to inject additional stimulus into the economy. Non-farm payrolls only increased by 96,000 last month while the unemployment rate fell to 8.1% as more Americans gave up the hunt for work. The percentage of people who either have a job, or are looking for one, fell to 63.5%, the lowest since September 1981. The USD weakened accordingly after the poor jobs data fuelled expectations of more easing.
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