No Surprises From Brussels
There were no major surprises out of Monday’s Eurozone summit. In French President Sarkozy’s words, the summit ‘went as planned’. However, this also means that there weren’t any positive surprises to offer to the markets, which may lead to further disappointments upon the Asia open. Most equity markets closed in negative territory on Monday. There wasn’t much in the way of negative news, but the positive news flow markets have enjoyed since the beginning of the year is proving hard to sustain and there will be far bigger challenges up ahead. Most of the decisions adopted today, such as early execution of the ESM and updates on the situation in Greece were flagged well in advance. The Czech Republic also joined the UK in opting out of the fiscal compact, with Sarkozy noting this was largely due to ‘constitutional reasons’. The lack of unanimity is proving less of an issue at this point, but governments are probably cognizant of the need to avoid overstepping democratic mandates. There has been a significant pullback in rhetoric since plans for potential transfer of fiscal sovereignty from Greece to Brussels were first floated, and it is becoming clear that the political cost will be too high. However, governments remain aware that time is running out to finalise talks on the second bailout before the mid-February deadlines, especially as the current debt-swap plans have not even been concluded. Portugal, the other elephant in the room, was not discussed outright today but the moves in bond markets surely have not gone unnoticed, and markets may need to brace for fresh volatility if yields continue to spiral higher. Ahead on Tuesday, macro figures are due across Europe, while consumer confidence is out in the US.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank