European markets are trading higher this morning as the bond yields have resumed their course of action and have started to move lower as normal. Much of the positive momentum is filtered from the U.S. markets which made another record high yesterday after the FOMC member hinted that the rate could take place next year but the talks could begin as early as the June meeting. However, as we know that the FOMC decision is very much dependent on the economic data and if we start seeing the economic data picking up its pace, all bets will be off. Therefore, you can never rule out the possibility of a rate hike in September as long as the economic data picks up fairly rapidly.
The European markets are also getting their boost from today’s fresh report that the ECB is ready to extend their QE plan should there be any need for this. This is another vote of confidence for those who have any doubt about the central bank’s commitment. This headline has made a major impact on the equity market which sharply moved higher and the bond yields literally dropped off the cliff on the back of this news. The possibility of cheap money staying in the pipeline is always a good news who know how to use it well.
On the other hand, Greece is still maintaining its trend of making the headline however, once again investors are not much complacent about them. If you start making the headlines every day than those headline are no longer perceived as headlines, but they rather become news. However, they are still sometime strong enough to bring shocks and this is what exactly taking place with Greece.
Today there has been fresh reports that Juncker has once again ruled out the possibility of Greece aid deal and confirmed that there is no compromise behind the close doors. Despite this, the ECB has confirmed that even if Greece does default they will keep their funding ELA line opens and this itself shows that the ECB is willing to keep the liquidity going in Greece and perhaps will not make the Greece banks cash strapped- although they are very much so with capital flight at its peak levels.
The Euro has plunged after the ECB on going commitment to support the QE and the news of deposit rates moving even further in theoretical terms have rattled the currency today. The uptrend for the Euro currency is badly shaken and the sell off is extremely intense as traders are booking their profit.
The German ZEW sentiment data and Eurozone CPI data will be the most important elements and if both shows improvement it will be only a matter of time that the fresh news report of more QE will be fizzle out very rapidly.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam