Eurozone still the problem child

While things were quiet at the start of the week owing to hurricane Sandy we saw a little pick up yesterday after a raft of economic data.

Equity indices in the US were strong yesterday and rallied to a 7 day high after they printed some relatively better employment data and an ISM manufacturing score of above 50. The big one though is later on today with non-farm employment data at 12.30. Non-farm employment is the most looked to indicator of US health in their economy as it provides investors with an indication of employment trends. Last month we had a much stronger than expected payrolls figure and a drop in the unemployment level to 7.8% from 8.3%. Readers here may remember me explaining how this figure was met with just a dose of scepticism especially owing to the pending elections in the US and the need for current regimes to show some strength. Today will be another chance to analyse the validity of those numbers and see if the US are indeed making some headway with their employment trends. However with the election next week I would find it difficult to say this data is going to be too much of a deviation from the last.

Europe is a totally different scenario and really proving to be the problem child of the global economy at the moment. This A.M brought more PMI data and although not altogether surprising confirmed that Europe is still in the doldrums and risks are mounting in not just Spain but Greece as well. Reports yesterday were suggesting that certain reforms demanded by the Troika were unconstitutional. All this serves is to throw just another element of doubt and risk at the eurozone and feed the rumours that Greece will be either forced to walk the plank or abandon ship themselves. Spain have taken a step forward by confirming the creation of a “bad bank” which should hopefully ease some strain from their banks balance sheets but simply transfer it to the nations balance sheet and this in turn increases the chances of Senor Rajoy coming with cap in hand to seek bailout money. He will still hold out for a while hoping the shadow cast by Mario Draghi’s OMT and plan to curb excessive high yields on government bonds will provide somewhere to hide in the short term. All these risks have combined to cause some weakness in the euro as it traded lower yesterday and overnight even in the face of higher prices seen in the US markets.

Little should happen until the US elections are out of the way though (next Tuesday), as I expect the media to be solely focused on that, also there is no need for any senior politician around the globe to commit to anything before they know the outcome of said election so I expect things to be on hold for a few days.

Attached is a good article explaining current predicament in Greece, worth a read.

 

http://online.wsj.com/article/SB10001424052970204846304578093072277336556.html

 

 

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