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Geneva Switzerland
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EURUSD hit a low 1.2425 earlier today as concern on Spain increases and as the market prices in an ECB rate cut. A near term short covering, and bounce in the EURUSD can be expected at such levels however the down trend will probably resume.
The forwards market is starting to price in a rate cut by the ECB. Standard Chartered Bank analyst: The rates market has started to price in an ECB cut. While a 25bps cut has yet to be fully priced in to the OIS forward rates, it is implied from the shift down and flattening of the curve. The forwards are now reaching a trough of 88bps on an adjusted basis. Our view remains that the ECB will cut both the refinancing rate and the ECB deposit rate a further 25bps in Q3-2012 before going on extended hold.
On euro zone, the German Economy Minister said that swift ratification of fiscal pact may bring immediate relief to euro zone problems including the Spanish one.
The European Commission’s economic sentiment index slipped by 2.3 points to 90.6, lower than the 92.0 point average estimates. It was the index’s second consecutive monthly decline and the lowest level since Oct 2009. Sentiment fell in every euro zone country except Austria and Malta. Consumers became more pessimistic in Cyprus, Italy, Malta, the Netherlands, Slovakia and Spain. The Commission’s business climate indicator for the euro area also fell in May, by 0.26 points to -0.77, lowest level since Dec 2009.
Italy raised 5.73 billion euros at the auction, above the mid-point of a planned issue range of 4.50-6.25 billion euros. It sold a new five-year bond due in June 2017 at an average 5.66 percent yield, the highest since Dec and 80 bps more than similar maturity a month ago. The sale was covered 1.35 times, broadly in line with the previous auction at the end of April. The Wednesday’s sale brings Italy’s overall debt issuance this week to 18.5 billion euros.
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