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EU Market Outlook - How Much Risk Has Been Factored In

Last updated 7/25/2012 1:38 AM EST (GMT -5) 0 Comments - Add your comment

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Andrew Taylor

Market Strategist, GFT

Follow @ATaylor_GFT

Top Headlines

o    AU CPI suits RBA vision

o    Spain and Italy start to brace for the worst

o    Greece will miss debt reduction targets and puts their bailout in jeopardy

o    EU and US manufacturing reflect growth fears

o    Market Moves:

·          AUD rallies on CPI data

·          Gold gains safe haven support on EU uncertainty

·          Oil rides the $88 level

The Asian session has taken some sting out of the recent push lower as selling pressures abate slightly ahead of the European session.

The main concerns that is responsible for this recent risk adjustment lower still remains high on the traders list of drivers to watch. Markets have factored in a full bailout for Spain and Italy to follow on the same slippery slope. The final nail for Spain will be a bond auction to be held late next week which if fails will essentially see them shut out of the debt markets and the full bailout will be merely a formality.

Manufacturing data for the Euro Zone has also highlighted stresses occurring in its key producing markets with Germany and France falling victim to declining demands.

Adding fuel to the fire is Greece’s failure to hit its required bailout targets. Falling short will jeopardize its next bailout tranche which is imperative to pay its bills. This has markets speculating on all sorts of scenarios, as the current game plan to just hold the EU together with bare minimum efforts, just isn’t doing the trick.

Australia released its Q2 inflation data which came in slightly under expectation. This will not be enough for the Reserve Bank to consider further easing as many were predicting. The main force that will show the governors hand will be China seeing a hard landing or fears that Germany will ground to a halt in effect taking away the EZ main source of growth.

Outlook

Equity markets can expect to open lower as it accounts for overnight moves. Barring any fresh developments we may see a day of consolidation as the markets chew over the road ahead. Any significant moves either way will need to come from fresh news with preferences still to the downside.

Economic Events to watch:

0800 GE           Jul Business Climate Index

0800 EU           ECB Bank Lending Survey

0830 UK           2Q Gross Domestic Product

1330 US           Geithner testifies before House Committee

1400 US           Jun New Residential Sales

For more intraday analysis and trade ideas, follow me on twitter @ATaylor_GFT

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About The Author

Andrew Taylor's financial markets career started in 1991 in the interbank FX market,where he worked for one of the largest banks in Australia. Andrew then went on to trade on behalf of some of the biggest global banks, working across five of the world's major financial hubs: Sydney, New York, Singapore, Auckland, and Tokyo.

His more than 20 years of experience spans market borders and asset classes, covering global equities, commodities, options and futures. Andrew's wealth of trading experience and ability to communicate with traders of all levels has put him in demand as a first point of contact for clients and the media alike when seeking information and guidance.