Equity markets have enjoyed an impressive start to the week, with European bourses being the main beneficiaries yesterday of improved risk appetite. The CAC 40 (France’s signature equity index) closed a staggering 5.5% higher on the day, with the DAX up by 4.6% and FTSE 100 up +2.9%. The recovery of sentiment should continue today as Eurozone finance ministers are due to approve the sixth tranche of Greece’s bailout money, postponing yet again the possibility of a Greek default.
However, Europe’s debt concerns are never far from investor focus, and a major catalyst for pessimism tends to be the actions of the three major ratings agencies. Reports swirling in the French media suggest that S&P is primed to change its outlook on France to negative within 10 days, a move that would once again rattle bond markets and hurry the process of European leaders reaching a comprehensive solution. History has shown that the past solutions generated by Europe’s leaders when under the pressure of market hysteria have not been that successful in assuaging concern, so the timing of a French downgrade would be extremely harmful.
Coming up today, Sweden’s preliminary Q3 GDP is expected to hit 0.4% QoQ, 3.4% YoY, and later in the session we will get the latest UK mortgage figures, Eurozone confidence surveys, and US consumer confidence.
Of additional interest, Italy is scheduled to sell some EUR8bn of bonds today and after the poor debt auctions last week we expect FX markets to be acutely sensitive to the results of these sales. If bond yields are once again forced to record highs (which is a very likely scenario), then expect EURUSD to suffer.
However, Europe’s debt concerns are never far from investor focus, and a major catalyst for pessimism tends to be the actions of the three major ratings agencies. Reports swirling in the French media suggest that S&P is primed to change its outlook on France to negative within 10 days, a move that would once again rattle bond markets and hurry the process of European leaders reaching a comprehensive solution. History has shown that the past solutions generated by Europe’s leaders when under the pressure of market hysteria have not been that successful in assuaging concern, so the timing of a French downgrade would be extremely harmful.
Coming up today, Sweden’s preliminary Q3 GDP is expected to hit 0.4% QoQ, 3.4% YoY, and later in the session we will get the latest UK mortgage figures, Eurozone confidence surveys, and US consumer confidence.
Of additional interest, Italy is scheduled to sell some EUR8bn of bonds today and after the poor debt auctions last week we expect FX markets to be acutely sensitive to the results of these sales. If bond yields are once again forced to record highs (which is a very likely scenario), then expect EURUSD to suffer.
By
Forex Trading Consultant
M.Zohaib Gadit
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