European heads of state

broker vs banks

The most constructive return seen yesterday from European heads of state was the air miles clocked up on the EZ frequent flyer card. Francois Hollande’s visit to Madrid to meet with Mariano Rajoy offered little excitement to the markets. As expected, both pledged support to ECB intervention in the bond market, as well as backing Greece to successfully deliver its Troika report, albeit a little late. Valencia upped the size of its bailout request, mounting pressure on a second bailout for Spain. EUR movement was non-descript, with equities finishing a slow volume day in the red.

The ECB added another important date to the diary on September 12th, where it will unveil its much awaited banking union proposal. This ties in nicely with the outcome from the German constitutional court who rule on the constitutionality of the ESM bail-out fund that day. It could be construed that the powers that be would feel calmer that a supervisory framework be put in place before the ECB gets its balance sheet involved in further bond purchasing.

The proposal will be based on 3 principal pillars; single supervision, credibility and broad coverage. Essentially coordination between national supervising bodies will no longer be sufficient, long story short the ECB will have its finger on the pulse of everything encompassing all banks acting within the EZ.

Merkel’s PR trip to China did have a more symbiotic feel to it. The Chinese did commit future support to buying up European debt. This would have come as somewhat of a relief, given the unpredictability of the Chinese government especially given the slow-down in their economy. Trade links between the two nations were also strengthened.

Bernanke’s eagerly anticipated speech at Jackson Hole will commence at 1500 BST. We still stand by our gut that the Fed will commit to taking the necessary measures but hold off making a call until the September meet following a few more data sets due next week. US data was been stable recently with GDP revised upwards this week. However, saying that, employment stats are the ones that will twist the arm of any further asset purchasing.

Early indicators out for August from Germany paint a worrying picture indeed for the EZ; job losses for the month increased and inflation jumped from 1.9% to 2.2%, while retail sales for July dropped by 0.9%. These figures come ahead of a busy day for inflation and employment figures within the EZ.

Expect a busy day…

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Latest exchange rates at time of writing

Indicative Rates Sell Buy
GBPEUR 1.2630 1.2645
GBPUSD 1.5780 1.5805
EURUSD 1.2520 1.2535
GBPJPY 123.80 124.10
GBPAUD 1.5300 1.5325
GBPNZD 1.9720 1.9745
GBPCAD 1.5650 1.5680
NZDUSD 0.7995 0.8018
GBPZAR 13.40 13.373
USDZAR 8.4230 8.4399
GBPPLN 5.2783 5.3030
EURJPY 98.15 98.40

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