The end of another week and month has global capital markets proceeding with caution this Friday, and especially so ahead of the German vote to approve the latest Greek "Band-Aid" solution. The proposed Greek debt buy-back operation should also be considered another candidate for market concern. Early next week, the euro-finance ministers propose to finalize Greek aid-affairs. The market expects further details of their debt buy-back operation to be published. This buy-back of government bonds is Greece’s latest attempt in cutting their debt burden. Their government is expected to pay between 30 to 35 cents on the EUR for their own issued product. No matter what, investors should expect the uncertainty around the percentage take-up of the reverse operation coupled with prospect of holdouts to complicate proceedings and eventually cause more euro-market tension.
The German lower house is expected to approve the Greek bailout agreed earlier this week. The market should consider this vote as one of many upcoming litmus tests of Chancellors Merkel’s authority ahead of German federal elections next year. Investors will want to note the number of coalition lawmakers that vote against the cost of the eurozone debt crisis and write down of Greek debt. For the next 10-months the German election will be sure to dominate eurozone news, similar to what the market experiences in North America, but unfortunately not with same drama intensity.
There are a plethora of economic indicators to digest. Obviously some are more important than others, while others only create more noise. The eurocoin is one of the earliest measures of growth in the currency area and should be given its due respect. Data this morning released by the CEPR (Center for Economic Policy Research) and the Bank of Italy really showed nothing new. They confirmed that the eurozone economy shrank again this month, although the pace of contraction has steadied. The eurocoin indicator was unchanged at -0.29%. This indicator estimates the quarter-over-quarter growth in GDP, excluding the most erratic of components like seasonal’s and short run activities. The measure is consistent with most other regional surveys of business activities.
It’s no real surprise to see the eurozone jobless rate rise to new record highs in October. The region's tougher austerity measures coupled with a deepening fiscal crisis are only worsening eurozone’s economic woes and by default employment is affected. The 17-member eurozone now has +11.7% unemployment, a tick higher than the Septembers print. This trend is expected to keep an upward trajectory well into next year, and maybe even beyond before any stabilization is noticeable. The OECD earlier this week projected that the euro economy should expect to contract -0.4% and -0.1% this and next year. Member states economies have shrunk for two successive quarters and forcing companies to tighten their belts even further. With unemployment being a lagging indicator, the numbers can only be expected to get worse.
North America will be focusing on Canada’s 3Q GDP results later this morning. Many anticipate growth to decelerate from +1.9% to +0.9%, q/q, and mark the slowest rate of expansion in 12-months. This may be significant enough to see the BoC undertake a dovish turn in rhetoric heading into the New Year. But, will the loonie follow? Improving U.S. data could end up helping rather than hindering the CAD movement. South of Canadian border, the U.S. has to contend with personal income and spending data releases. A slow down in the results are expected. Finally, this week can be closed out with regional manufacturing surveys. Investors anticipate a small rebound.
The EUR still has the green light to pass “go” or in other words, continue its next leg higher. The overall scope is for the bulls to see a print north of 1.31. Neither metrics nor fundamentals are being used as an excuse to impede the current single units momentum. Many short-term EUR longs have met their objectives intraday, however, so far there has been limited opportunity to establish new long positions. Investor bias remains building for gains towards the upper 1.30 echelons over the coming sessions. The 10 and 30-DMA point north, again adding further support to the upside potential. Expect the plethora of investors to be looking to buy the EUR on dips and this despite the pullbacks of late being rather limiting.