The EURO drives another round in the currency rollercoaster
Italy and Greece now have “technocrat” leaders in place – the word is derived from the Greek word “tekhne” meaning skill and advocates the replacement of politicians with scientists and engineers who have the technical expertise to manage the country’s economy. The term became popular in the US during the Great Depression of the 1930s.
So, can the new “technocrat” leaders of Greece and Italy stop Europe from falling in to their own great depression? The answer from the bond markets seems to be ‘no’ Italian 10 year yields were yesterday up to 6.8% and Spanish yields rose above 6% for the first time since August.
Unlike previous technocrat leaders in Italy, such as Giuliano Amato who became Prime Minister in 1992 to respond to Italy’s expulsion from the European Monetary System, the leaders now have less power to affect economic policy, needing to work on finding a solution with 17 other leaders, each with their own agendas. At the moment sadly like all policies out of the Euro Zone the implementation of technocratic governments will fail to address the underlying issues.
Figures out today are expected to show the Euro Zone growing at a rate of 0.2% in the third quarter, with most of the growth being driven by Germany (0.5%), and France (0.4%). Yesterday’s release of Industrial Production which showed contraction in the periphery Portugal (5.8%) and Italy (4.8%), as well as the core Germany (2.9%) and France (1.9%), points towards the Euro Zone entering to a recession in the 4th quarter. It also places downward pressure on the release of the German ZEW survey which is expected to fall to 32 in November with risk to the down side.
US economic data today includes the Empire State Manufacturing index, which is the first survey for November. The market is looking for the survey to rise from -8.5 to -2, but there is some scope for an upward surprise as the survey has been lagging the ISM Manufacturing survey for some time. This could reflect compositional effects, with the ISM survey weighted towards larger companies, but a rally would confirm that underlying economic activity remains solid if not spectacular.
What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.