Euro Hangover
The euro hangover continued in the wake of the German ratings outlook downgrade by Moody’s, which put European bond markets on the defensive – in the periphery and core. European equities were also under pressure, ensuring that the path of least resistance for EURUSD and such crosses as EURJPY remained on the downside. The latest data prints have certainly not helped, as the German and French manufacturing PMIs for July fell to 43.3 and 43.6, respectively. And while the services PMIs held up better, the German figure has been under the 50 line for two months running. With the Troika initiating its review in Athens, the market was prepared for more negative headlines, which came in the form of comments from EU officials that Greece is likely to miss its deficit-reduction targets ─ necessitating further debt restructuring. Though hardly surprising, this threatens a standoff in coming weeks, which will offer little comfort to those looking for signs of greater Eurozone cooperation. That was certainly in short supply today, as French and Italian officials denied a Spanish Foreign Ministry statement that Spain, Italy, and France have made a joint call for swift implementation of the decisions taken at the last EU Summit. Either way, conspicuously absent was any mention of Germany. Mixed US data (July flash PMI down to 51.8; July Richmond Fed index down to -17; May home price index up 0.8% m/m) had little impact, while the downside for Australian dollar was limited amid reports that the mid-year Politburo (‘Situation of the Economy’) meeting could take place this Thursday or Friday ─ fostering hopes of further stimulus measures. In the interim, the focus will be on the Australian Q2 CPI report, which will shape expectations for next month’s RBA meeting.
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UBS Investment Bank