Intraday Market Thoughts

Struggling Euro Awaits Italy GDP. New Trades Posted

by Kyle Morrison
Aug 5, 2011 6:09

European turmoil set to continue ahead of rumoured Merkel/Sarkozy/Zapatero talks, Italian GDP and Industrial production, UK producer prices and US payrolls. Ashraf's latest Premium trades include EURUSD, USDJPY, EURGBP, gold, silver and USD crude with new charts on EURUSD 1-month volatility.

Yesterdays falls in European markets look set to continue today as fears about the solvency of Spain, and more so Italy has raised the likelihood that against a backdrop of slowing growth, and rising bond yields Italy may not be able to avoid defaulting on its large mountain of debt. Rumours of a bank run in Italy late last night sent the Swiss franc soaring once more to record highs against the single currency. There is some talk in the market that Sarkozy could well make a statement today after talking with Merkel and Zapatero overnight.

Talk of the ECB buying peripheral debt wasnt enough to stop the slide in sentiment and unless European leaders get a grip on the situation today we could well be set for a Europe Lehman moment.

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Todays release of Italian industrial production data for June and Q2 GDP data arent likely to assuage concerns that Italy is not able to grow fast enough to be able to service its debt. Industrial production expectations for June are for a gain of 0.2% after a drop of 0.6% in May, while Q2 GDP is expected to come in at 0.3%.

EU commissioner Barrosos comments that he had deep concerns about Italy and Spain, and calling for the EFSF to be expanded, merely highlighted the divisions within Europe especially as the demand was swiftly rejected by Jens Weidmann head of the German Bundesbank.

In the UK, producer prices for July are expected to remain elevated with input prices rising to 18.7% Y/Y and output prices 5.8%, but these figures remain pretty much irrelevant with the Bank of England continuing to sit on the sidelines over fears of a stuttering recovery, as the likelihood of a move on interest rates, remains unlikely in the near term, and given current market turmoil, virtually non existent.

In the US it will be hoped that todays July employment report will lift the dark mood overshadowing global markets, however with expectations of gains of 85k, up from Junes horrible 18k, hopes arent too high.

With sentiment as depressed as it is it would take an almighty beat to shake the market out of its fear, while a miss on the downside could well open up further risk aversion.


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