No news is good news!
Markets are being given very little to get excited about from the EU Leaders summit.
It seems that there are not going to be any major decisions reached in Brussels but traders are in the mood to allow more time for conclusions to be found.
The ECB bond buying programme still provides the single currency with a backstop which can be brought into play at any time. There still seems to be disagreement between Spain and Germany regarding guarantees for any bank bailout but time is on the side of Germany as sooner or later Spain will have to come to its peers for funding.
Economic fundamentals have taken a back seat so far this year as risk outlook has been the main driver of currencies. As we come towards the end of the year that outlook may start to change and 2013 see a shift back to relative economic performance. The picture may become a little clearer after the election in the U.S.
Germany’s economy is ironically going to start to cause some concern to the EU going forward. There is no doubt it is starting to slow and given that Germany will have to provide most of the bailout money Mrs Merkel will have a tough job balancing domestic and Eurozone policies. She said yesterday that she hoped that Greece is able to stay in Eurozone but her words weren’t particularly positive. That is a battle for another day (or summit) as it is Spain that is exercising the markets right now and so far things are being viewed in a positive light. Yields are continuing to fall and there is no sign of any lack of appetite for new issues.
The recent improvement seen in the data emanating from the U.S. came to an abrupt halt yesterday as jobless claims rose to their highest level for three months calling into question the accuracy of last week’s much improved release. This merely proves the point that it is always dangerous to look at one piece of data in a series but it is the trend and moving average that provides the most accurate picture.
The Euro has weakened on the back of profit taking but supports are not being broken which again adds to the “allowing more time scenario”.
Today will bring similar price action to yesterday unless we see a major breakthrough (which seems unlikely).
The continuing appetite for risk and the markets bid tone will most likely remain and bulls will be well positioned to continue the rally into the month end.