Stock markets gained modestly last night after G7 pledged to closely follow developments in the Euro zone area. Meanwhile, Moody’s lowered ratings on Austrian banks and six German banks on back of increased risk of further shocks from the Euro zone debt crisis as well as the banks’ limited loss-absorption capacity. This was however hardly unexpected. Markedly better Australian GDP than expected, hopes that Fed will stimulate the economy further and indications that Spain is edging closer to a financial bailout (FT) helped sentiment overnight. Asian stock markets are rising (Nikkei +1.8%) and US stock markets are cautiously positive.
ECB AWAITING POLITICIANS. We expect the ECB to maintain its current strategy leaving the refi rate unchanged at 1.00% and refrain from introducing any further liquidity measures. By taking no further action the central bank exerts pressure on euro area policymakers to agree sustainable solutions to the ongoing debt crisis. ECB’s Draghi should reiterate that it is up to national governments to resolve the current debt crisis if indeed they are serious about maintaining the common currency. However, all non-standardised measures should remain in place enabling ECB to act as necessary if the situation suddenly deteriorates.
SEB