MORNING BRIEFING: Euro zone package marks the EU determination

[RTFX-Trading]

MORNING BRIEFING:  Euro zone package marks the EU determination

What’s new:
European Union: ECB, European Union and IMF agree to a massive emergency package
Euro Zone: ECB to buy Euro zone government bonds
Japanese Yen: Loses some support on the back of Euro Zone improvements
United Kingdom: Talks for formation of government still on

Today:



Rates in Asia and Indices:
EURUSD: 1.2988 - 1.2807.
USDCHF: 1.1084 - 1.0980.
GBPUSD: 1.4907 - 1.4761.
EURJPY: 120.84 – 118.11.
USDJPY: 93.05 – 91.69.
DowJones: 10’380.43 -1.33%
NASDAQ: 2'265.64 -2.33%
S & P 500: 1'110.88 -1.53%
Nikkei: 10’521.53 +1.51%  
Shanghai 2’676.14 -0.46%  
Gold: $ 1'200.30
Crude Oil: $ 80.21
 
Comments:

During the weekend European leaders decided on an emergency fund to eradicate contagion fears and potential systematic risks that might follow the Greek debt episode. Finance ministers made their final preparations ahead of the open in Asia this morning.

The European Union will expand the stabilization fund used for non-Euro zone members by EUR60bln and the funds will be made available to all Euro zone members. This increment will be financed through the issuance of bonds by the EU. In addition the 16 members will guarantee up to EUR440bln of new government bonds issued by any member facing difficulties in the government bond markets. The IMF, in turn will provide an additional EUR250bln of support.

This package is a very significant step, it will mean governments will have to tighten fiscal policy, which might weigh on Euro zone growth prospects, but it is supportive to the EURO (at least in the short term) as it should eradicate contagion fears. In addition the ECB also changed its stance with respect to buying government bonds and this is meant to ease market stress and rising government bond yields.

The Yen retreated early today, as euro zone matters showed signs of improvement, the US Dollar and Yen (considered as safe-haven investments in times of risk) had found support in euro zone woes. The US dollar climbed 1.73% against the Yen.

The British Pound regained some support against US Dollar and the yen, although it is expected to remain under pressure as markets remain anxious to see the formation of a new government and how it expects to go about public finances. In the meantime Conservatives and Liberal Democrats will hold further talks today to try to strike a deal to govern.


Good day,


Rudolf Muscat

Trading desk

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