The EU Summit Shakes Up the Financial Markets

Asian equities have opened on a positive note after the European leaders agreed to ease payment rules for emergency rules to Spanish banks and relax conditions of potential help on Italy after the German Chancellor took expanded steps to control the debt crisis. Further a weaker dollar and assurances by Beijing that top metals consumer China will meet its GDP growth target for the year, but the contract is still on track for its worst quarter since the third quarter of 2011.

Investors will look for more trading cues from the last day of the European Union summit, where bickering among leaders over what to focus on in tackling the Euro-zone debt crisis will likely keep gains capped. A solution to the Euro-zone’s fiscal woes is not expected in the near future, despite a two-day meeting by the leaders of EU member’s states to discuss a solution to the crisis. The crisis has triggered an economic recession and even stoked fears of dissolution of the Eurozone. Its ripple effect, however, has reached all the way to China, a major trading partner of the EU. Chinese exporters are among the direct victims of a crisis that has led to high unemployment, a reduction in consumer spending and a corresponding depletion of demand for Chinese-made goods resulting in weak performance of metals pack. Further Alcoa, hinted increased jobs cut in Australia due to weak Aluminum prices and may continue to support slight gains in refined metal prices.

From the economic data front, the Euro-zone releases are likely to remain weak while the US releases in the form of personal income and spending may remain unchanged with slight fall in PMI and Michigan confidence. However, increased efforts of the Euro chiefs may support base metals to remain positive in today’s session

After a major plunge yesterday, gold futures prices stood-up to fight the sell-off pressure in premarket trading. Prices rose by over a percent on the back of a reviving euro which increased over 2 cents after the EU officials announced a plan to form a single financial supervisor for the currency bloc.

For the rest of the day we expect market to be very volatile as the EU meeting is still under doubt while some news stories have raised the hope for a structural outcome from the meet. It’s been pretty confusing as stories, news and press releases overlap outdated news with current conjecture. At present, Italy and Spain are making demands on the EU to help with liquidity in other forms then a bail out, while they hold the 120billion growth fund hostage. At this time, Spain has also had its 100billion bailout suspended until further explanations and understandings are reached. Germany is still opposing to unite with the others, in this matter they are in the rights, Spain and Italy are not exceptions to the rules and should follow set procedures and not be allowed to cloak bailouts in the guide of other funding and not have long term goals and budgets.

Reports today may show the US personal income to rise a bit while spending may not improve much. Euro zone CPI may also rise and that may weaken the currency. But still the main focus will be the Summit, once it concluded this evening and the closing statements and press releases are issued markets will be able to evaluate the actual outcome.

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