Closer Union
Despite problematic trading in equities during the US session, Asian markets look set to end Friday broadly flat as news reports from the EU summit pointed to a rather mixed outcome. 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. Data in the US was mixed on Thursday. 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 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 expected to have their second working session from 8AM – 11AM (GMT), followed by a press conference. Also due today are the Canadian inflation report and US existing home sales data. Overnight EURUSD traded 1.3059-1.3077 and USDJPY 79.27-79.41.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank