EUR/USD Spreads Fall on Disappointment Over EU Summit Outcome
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 12 December 2011: 11.00am Update
Investors waking up this morning were greeted by the uncomfortable realisation that the weekend's summit had solved nothing in the Eurozone crisis. As a result, markets are lower as investors switch to safer areas such as the US dollar and Treasuries.
By 10.30am (London time), the FTSE 100 had dropped by 0.77% to 5486.47, while the FTSE 250 had lost 0.94% to 10,034.91. European markets were even worse off, with the Dax down 2.2% and the CAC 1.5% lower.
Après-nous, le Déluge?
As we bask in the not-so-warm afterglow of the latest European summit, we are left wondering what has actually been achieved. The answer is, I fear, not much. This morning's market reaction is not what leaders would hope, with stock markets down across the continent, the EUR/USD spreads dropping and bond yields climbing once more.
Leaving aside the excitement of David Cameron's 'very well then, alone!' moment, nothing of note has really been achieved.
The Franco-German axis may trumpet the meeting as a first step on the road to closer union, but it remains to be seen whether the measures agreed can actually be implemented.
The EU may look to use the sanctions for breaking budgetary rules, but Eurozone officials fear that this might provoke a legal challenge from Britain, which will object to the use of EU institutions for the fiscal union.
In addition, national parliaments will need to ratify the new rules on deficit levels, raising the prospect of referenda in various countries. Tellingly, some politicians have already spoken out against the plan, with the Dutch opposition finance spokesman saying that Ms Merkel and Mr Sarkozy cannot be allowed to run the continent by themselves.
Perhaps the most worrying thing is that Europe is still lacking the 'big bazooka' rescue fund that can stem the crisis; discussions about bunging more cash to the IMF might sound promising, but the sums mooted fall short of the size required.
To paraphrase the American author William Faulkner, the summit was full of sound and fury, but it signified little.
Little comfort elsewhere
Spread betting markets may have been fixated on the Eurozone summit last week, but there are plenty of other things to be worried about. The Eurozone already appears to be on course for a recession next year, and this morning South Korea cut its growth forecast, with expectations of 4.5% for both 2011 and 2012 cut to 3.8% and 3.7% respectively.
Indian factory output slowed in October for the first time in two years, data released this morning showed, down 5.1% compared to October 2010.
In addition, Standard Chartered has provided the UK and Europe with an early Christmas present. It would seem that the spirit of Scrooge is abroad among this bank's analysts, who said this morning that both Britain and Europe will endure worse recessions than previously expected in 2012.
Standard Chartered thinks that the UK economy will contract for the first half of 2012, with GDP falling by 1.3% overall in 2012. The picture is expected to be even worse for the rest of Europe, with the Eurozone seeing growth contract by 1.5%.
US pre-market
US markets are expected to start the day lower, mimicking the action seen in Europe. The Dow is projected to begin around 100 points down, with the S&P 500 12.2 points lower. No economic data of note is scheduled for release today.
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The above comments do not constitute investment advice and neither IG Index nor SpreadBets.org.uk accept any responsibility for any use that may be made of them.
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"EUR/USD Spreads Fall on Disappointment Over EU Summit Outcome" last update by AG, 12-Dec-2011
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