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By Daily Market Brief - Wed 18th Jul 2012

 

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Yesterday we witnessed a significant fall in the value of the euro through UK trading as the markets turned nervous ahead of the German vote tomorrow on aid to recapitalize Spanish banks. Angela Merkel is talking tough and has stated that she will get “the majority she needs” and she better hope so. If she fails to get a majority we can expect to see a sharp fallout in confidence; the market is already nervous and does not see a majority as a foregone conclusion. Spanish banks need as much as €100bn euros and with confidence in the Spanish banking system at very low levels a smooth process of recapitalization is a must.

EUR/USD fell a cent during UK trading yesterday but managed to reverse its losses following Ben Bernanke’s testimony to congress yesterday. Initially the market was disappointed as Bernanke refrained from mentioning further stimulus directly. However the overriding sentiment was that the economy remains very weak and stimulus remains very much on the cards- the door is still open. This sentiment helped the USD to weaken off and confidence to pick up with the S&P closing up 0.7% after falling off 1.2%. EUR/USD also bounced just under a cent reversing the earlier dip; Asian currencies and the AUD also posted gains on the increased appetite for risk.

For today focus will be on the Bank Of England minutes from the July 5 meeting where a further 50bn of QE was announced. The market will naturally be looking for hints on future easing potential or whether the recent injection will close the door on the QE programme. In addition we also have UK jobless data today - it is expected that the jobless rate will remain unchanged at 8.2%. The pound remains robust in the markets and is trading a multi-year highs against the Euro, if we see ok jobs data with a lack of appetite for more QE then we could see an uptick in the pound today. However with yesterday’s fall in inflation and the on-going headwinds in the domestic and global economies I expect to see more scope for further stimulus ahead keeping the pound pegged back.

Report By Phil Mchugh