Financial markets got hammered as European leaders signaled talks on expanding the EFSF stalled. Policymakers have tried to downplay the EU summit which had lift market sentiment over the past week. While the meeting will focus on 'further efforts required to stabilize the situation', it's not practical to think that it will mark the 'end of all the troubles'. Wall Street weakened with DJIA and S&P 500 losing -0.63% and -1.26% respectively. In the commodity sector, the WTI crude contract for December delivery retreated after failing to re-test 90 and ended the day -0.58% lower while the equivalent Brent crude contract plunged -2.45%. Gold price continued to correct lower.
Investors were thrilled earlier in the day on reports that France and Germany have come to an agreement to boost the EFSF and recapitalize European banks. However, sentiment reversed after European policymakers denied the rumors. Martin Kotthaus, spokesman for Finance Minister Wolfgang Schaeuble, affirmed that 'there is no discussion about raising [the EFSF] beyond 440B euro', signalling the fund size will stay where it is and Germany's participation will not be raised beyond 211B euro. Meanwhile, financial leaders in the Eurozone have been trying to tone down expectations of the EU meeting on October 23. German Chancellor Angela Merkel stated that 'it won't be the final point where we regain the confidence of others, but it will be a stepping stone, a marker on the road' and 'all of the sins of omission and commission of the past cannot be undone by waving a magic wand'. EC President Jose Barroso also said that 'even if we do arrive at a political decision on everything that's on the table, which I hope we will, that doesn't necessarily mean that there will not then have to be an implementing phase'.
By
M.Zohaib Gadit
Forex Trading Consultant
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