Summit Under Way
The dollar reversed some of its losses on Friday, though this comes after a heavy week of selling. Investors are clearly concerned about getting ahead of themselves following yesterday’s US data which was at best, mixed. Jobless claims were up by 46k to 388k last week mainly due to seasonal factors. The Philadelphia Fed index jumped to 5.7 in October (consensus: 1.0) but the details were weak with the employment index down to -10.7 (from -7.3) and new orders index down to -0.6 (from 1.0). The latest EU Summit is under way but market price action suggests any hope of meaningful constructive developments are fading. Accord on a banking union and further integration was achieved, though reports are yet emerging of disputes over a German call to allow individual EU budgets to be vetoed. In addition, although a supervisory authority for banks looks set to take shape over the course of the coming year, Germany again warned that implementation would take time and direct banking recapitalizations could only take place after the supervisory framework took shape. No decisions were taken on bailout programmes, nor were any expected as there was perhaps a realisation that domestic issues in Spain had to take precedence for now, but French President Hollande’s call for no ‘additional conditionality’ being imposed appears to be the direction the Eurozone is headed. Otherwise, on the data front the market could probably look back on a week where global macro concerns eased significantly, if not materially, and as such the gains in risk could well hold.. The road ahead will still be bumpy for growth, especially with more headwinds due as austerity is still a driving factor, but what could make the difference for investors to start reduce cash weightings and move funds again is confirmation that the upturn is structural and sustainable, rather than a stimulus/sentiment-driven cyclical pop. Ahead today, markets will continue to focus on the EU summit where the leaders are currently in their second working session, which should be followed by a press conference. Also due today are the Canadian inflation report and US existing home sales data.
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank