08:45 A.M
ETX Capital calls the FTSE 100 +13, the DAX +15 and the CAC-40 +15
Stocks are set to open mildly higher in Europe, helped by upbeat sessions in the US and Asia overnight. However, clients are again sticking to their “wait-and-see” stance as the EU summit kicks off later today. With German Chancellor Angela Merkel still resisting euro zone bonds, expectations for the summit are low. For now, markets are at the mercy of headlines from the summit, so expect a continuation in volatility. Looking ahead, the UK will print 1Q GDP, which is likely to confirm a second straight quarter of economic contraction. The US will also print 1Q GDP figures, together with weekly jobless claims. In Europe, Germany’s labour data and euro zone confidence surveys are both likely to gain much attention.
Ishaq Siddiqi - Market Strategist - ETX Capital
09:00 A.M
European equities are trading slightly higher this morning receiving a modest boost from growing expectations that the ECB might be lowering interest rates next week in light of an ongoing worsening economic situation across Europe especially with also Germany, Europe’s biggest economy starting to show pronounced weakness in economic activity as some of their main trading partners outside Europe, like China and USA are struggling themselves with the fallout of the European financial crisis.
Besides the approval of some growth measures already indirectly agreed on last week during a meeting in Rome between Merkel, Hollande, Monti and Rajoy it seems to be the case that barely anybody is expecting the EU summit to yield any substantial progress in regard to issuing Eurobonds and bringing down periphery interest rates to more sustainable levels.
Therefore with expectations are already very low and a disappointing outcome likely similar to how it has been most times during countless meetings during the past couple of years, some speculate that there is plenty of room for a positive surprise. Italy will be holding bond auctions again today with the 3 Billion Euro 10 year auction expected to receive special scrutiny as investors continue to demand an extra premium in form of much higher yields especially with the health of Italian banks are increasingly cause for concern.
Besides the EU summit, German unemployment data and European confidence figures are scheduled for release today. It will be interesting to see if German unemployment data continues to be rather unaffected by the European financial crisis, with unemployment remaining at a multi-year low or if first signs appear that the recent slowdown in growth is having an impact on employment .
In contrast European confidence figures are expected to remain at low levels, painting a fairly bleak picture and showing widespread weakness with matters potential having to get worse first before they get better. In the US the economic data calendar is on the light side with weekly jobless claims expected to be the main focus point while traders are continuing to look out for any further earnings warnings ahead of next month’s earnings season.
Markus Huber - Head of German HNW Trading - ETX Capital
12:30 P.M
Stocks across Europe relinquished opening gains today, following a series of grim economic data and spiking Spanish bond yields. Core government bonds have picked up as a result, recovering yesterday’s losses. The German September bunds contract is up around 68 ticks, while the EURO STOXX 50 index is down around 19 points. The mood again is firmly risk-off.
The Spanish 10-year yield has moved dangerously close to the 7% mark, as the grim macro data has been compounded with diminishing expectations for a “magical” aggressive response by EU leaders at this week’s summit. As such, clients are cutting positions before headlines from the summit hit the wires.
The much-awaited summit starts today with a press conference due later, which may offer some clues over the debate. Germany continues to resist the idea of Eurobonds, but leaders are expected to approve a package of growth-supportive measures and may agree on forming a banking union.
Data from the region today reinforced the need for EU leaders to act swiftly. Worryingly, labour data from Germany showed a 7k increase in the unemployment level in June, indicating that the German labour market is feeling the effects of a declining economic outlook. In the UK, the final reading of 1Q GDP suggests the contraction in the period may have spilled over into 2Q.
The EC’s confidence survey slipped to 89.9 from 90.5, but was not as bad as market expectations for an 89.6 drop. Still, the survey suggests further contraction in euro zone GDP, with core economies also in danger of further economic deterioration. The report places further pressure on EU leaders to drum up stronger policy responses to spur growth.
Elsewhere, Italy’s government paid slightly higher rates at a bonds auction on mounting doubts that the EU summit will yield little to mend the euro zone. Looking ahead, attention will be on the US, with 1Q GDP and jobs data in focus. But even in the US, the attention will be on the EU summit, especially as the world’s largest economy is increasingly feeling the pinch from the never ending and still worsening European financial crisis.
Not only is the US economy showing signs of renewed weakness but also corporate profits are increasingly suffering not just because of slower economic growth but due to a strong US Dollar too. At 1155 BST, ETX Capital sees the DJIA opening down around 72 points and the S&P 500 down 7 points.
Ishaq Siddiqi - Market Strategist - ETX Capital
05:30 P.M
A series of weak economic releases, coupled with diminishing hopes that EU leaders can agree on measures to rescue the Eurozone from disaster has sapped appetite for risk. Stocks on both sides of the Atlantic have sold off sharply, with the FTSE 100 down around 67 points and the Dow off around 145 points. The euro has dropped sharply against the dollar, while commodities have all registered losses. The flight to safety has seen core government bonds push higher, with the German September bunds contract up around 65 ticks.
As the EU summit underway, risk assets are likely to face further pressure heading into the weekend, should headlines out of Brussels fail to boost confidence in Friday’s session.
So far, noises out of Brussels have been mixed – with German Finance Minister Wolfgang Schaeuble saying the country may be willing to move sooner than expected to accept shared liability of Eurozone debt and would support short-term measures to deal with the acute financing problems facing some countries in the EMU. This statement was in stark contrast to remarks by Angela Merkel in the run up to the summit. Instead of helping soothe the market, Schaeuble’s comments have only caused confusion and uncertainty over Germany’s stance at the summit. What appears likely at this point is that EU leaders will able to conclude a pact on growth to supplement new rules on budget discipline.
Data today has been dismal, but not a surprise given the turmoil in global markets. Labour data from Germany showed a 7k increase in the unemployment level in June, while the final reading of UK 1Q GDP suggests the contraction in the period may have spilled over into 2Q.
The EC’s confidence survey slipped, indicating a further contraction in euro zone GDP, with core economies also in danger of further economic deterioration. The report places further pressure on EU leaders to drum up stronger policy responses to spur growth.
In the US, markets showed little reaction to 1Q UD GDP and weekly jobless claims data. GDP was printed at 1.9%, a reading that was unchanged from the previous estimate. Jobless claims fell slightly more than expected last week, though the prior week's figure was revised higher.
In stocks, Barclays shares were battered on yesterday’s news that it must pay a settlement of GBP290 million on claims that the bank had manipulated the inter-bank lending rates. Other UK banks are also allegedly involved in these claims, leading to a slump across the wider banking sector. The pressure is now on Barclays CEO Bob Diamond to step down, which could see the share price under significant pressure on uncertainties over a change in management.
Looking to Friday’s session, headlines from the EU will be in the spotlight. In terms of data, we have euro zone harmonized inflation, while in the US, Chicago PMIs and the University of Michigan confidence survey are expected to garner much attention.
Ishaq Siddiqi - Market Strategist - ETX Capital
www.etxcapital.com
