(ES) Spain Econ Min de Guindos: Reiterates view that Q2 GDP contracted slightly more than -0.3% in Q1.
(FR) France Fin Min Moscovici: To lower 2013 GDP target to 1.0-1.3% range vs 1.7% prior target; Sees 2012 GDP at 0.4% or less vs 0.5% prior target.
(EU) Finland Govt: Both Finland and Netherlands plan to block ESM bond purchases in the secondary market- Netherlands Finance Ministry: To decide on ESM bond purchases on a case-by-case basis.
(DE) German Government spokesperson: EU Council did not create a new instrument to save banks directly; wrong to say that there will not be conditionality on aid.
How to interpret these headlines?
Market started out today positively with momentum from last Friday’s EU Summit on the surprise agreement of using ESM to recapitalize banks directly, which effectively limited the effects of any potential contagion fear in the future, thus brought demand back to the Euro… However, it is obvious that the overall market ignored Germany’s warning on the conditionality of the agreement on Friday due to the initial adrenaline rush, but after a weekend of cool down, today’s objection from Finland and the Netherlands carried more weight and reminded the market that the ESM bond purchases might not be as straight forward as it sounded, especially now with the Netherlands and Germany putting road blocks along the way, reminding the market that the European Economic Crisis is far from over…
Of course, the comments out of Spain and France didn’t help much either, with Spain once again reiterating Q2 GDP contraction worse than 0.3% and France lowering GDP target for both 2012 and 2013 below previous targets. EURO seems to be facing an upward hill battle moving forward, and let’s not forget the potential for ECB to cut rates beyond the 1.00% market this week, EUR is definitely not looking too good for the short-term.
However, that being said, I believe EURUSD could experience ‘some’ consolidation, but the road-map provided by the EU Summit last week is extremely positive, and I believe it has changed market perception for the EURO for the long-term already… Considering the fundamental outlook of U.S. with today’s Manufacturing PMI below 50 and the fact that NFP is scheduled for Friday, I believe EUR will remain resilient and has a potential for rebound back towards the 1.3000 level, should the employment condition worsens in the U.S. In conclusion, I would be looking to take advantage of these consolidations and BUY EUR at the low.
European Economic Crisis Continues As Reality Diminishes Market Optimism
July 2, 2012 by 10 Comments