No Summit Surprises
The ‘growth and jobs’ agenda was the focus of Day 1 of the EU Summit, and on that score, the EU leaders delivered what had been widely expected – a EUR10 bn capital boost for the EIB; project bonds; and a EUR120 bn growth package. The lack of any new initiatives here offered no inspiration for markets, with EURUSD remaining mired in familiar ranges and showing little conviction. Even the growth package fell short of the EUR130 bn flagged last week, with questions remaining as to how this could be financed. Reports that Italy was not prepared to formally sign off on the growth package until a deal is reached on an EFSF/ESM bond-buying proposal added a late twist to the proceedings, but the FX reaction was muted. Setting the agenda for Day 2, the EU President Van Rompuy noted that “short-term Euro policies” will be up for discussion. Press reports already suggest that there will likely be agreement on the removal of the ESM’s preferred creditor status, albeit only in the case of the bailout loans for Spain. There has thus far been little indication as to the state of play on such issues as EFSF/ESM bond purchases or more direct recapitalisation options for banks, though German officials did reiterate their opposition to the latter if supervisory authority remains at the national level. With slower growth concerns magnified by the weaker than expected German employment data, we believe risks may be skewed towards a hardening, not a softening, of the German stance. While some investors are still clinging to hopes of ‘positive’ Summit surprises, we maintain that any EURUSD bounces will simply invite renewed selling opportunities.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank