Markets Consolidate
A Bloomberg story citing ECB member Noyer gained a lot of attention on Tuesday. Noyer was reported as saying that the decision to give up senior status was based on a strong belief that Greece is a unique case and there will not be another restructuring in the Eurozone. The euro initially came under some pressure given the uncertainty over whether the ‘paripassu’ pledge would still hold in the case of a possible future default. However UBS rates strategy believe that what Noyer was trying to communicate is that the fact that the ECB has now waived seniority demonstrates how small it sees the probability of further restructuring, and it is hard to see the ECB backing away from being pari passu given Draghi’s recent commentary. The euro later retraced most of the earlier move as wider risk appetite recovered.. The joint press conference by German Chancellor Merkel and Greek Prime Minister Samaras was largely in line with expectations. Samaras pledged to implement reforms and stay in the Eurozone, and Merkel saying she will wait for the Troika report before making a decision on Greece. Samaras noted that the issue of extending the deadlines for Greece was discussed with Merkel but refused to give any further details. BoE Governor King noted that the UK faces a slow and difficult recovery and that output will not return to pre-crisis trend for some time. He added that it may be “justified to aim off” the inflation target under some circumstances, fueling expectations of further QE in November.
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank