Lingering tensions between Britain and France over the future of the EU will have intensified from Wednesday onwards after Nicolas Sarkozy accused David Cameron of behaving like “an obstinate kid” after Cameron stunned the EU by using the British veto at the European summit late last week. Cameron has indicated that he was prepared to confront France and Germany after Sarkozy’s critical comments.
The French newspaper Le Canard enchaîné quoted Sarkozy as saying:
It’s the first time that we have said ‘no’ to the English. Cameron behaved like an obstinate kid, with a single obsession; protecting the City, which wants to carry on behaving like an offshore centre. No country supported him. That is the mark of a political defeat. Objectively, it was a good coup. I manoeuvred well. The whole world recognised that my proposal was the only possible course. The accord will perhaps not put an end to the crisis, but it is a tool for facing up to it. The dynamism of the Franco-German axis enabled us to rally 26 countries.
German Chancellor Merkel reiterated both her and her government’s opposition to euro bonds as an overall solution to the Eurozone sovereign debt crisis, while European Central Bank council member Jens Weidmann broke ranks by stating that policy makers are becoming increasingly more skeptical that the ECB’s debt purchases are actually working. Merkel said there’s now no turning back after last week’s European summit deal on stricter budget controls, with the path to fiscal union in the euro region now “irreversible.” “There are no simple and fast solutions,” Merkel told her lower-house lawmakers.
Market summary for Wednesday 14th December
European and U.S. stocks fell significantly for a third day in series, the euro finally slid below the psychologically important $1.30 level for the first time since January whilst commodities sank dramatically as growing funding stress in Europe fuelled concern the region is struggling to contain the debt crisis and growth will therefore be hampered.
The Standard & Poor’s 500 Index closed down 1.1 percent to end at 1,211.82. The Stoxx Europe 600 Index lost 2.1 percent. The euro weakened as much as 0.7 percent to $1.2946 before trimming losses to trade at $1.2981. Oil tumbled the most since September and gold slid below $1,600 an ounce to close at the lowest price in five months. Ten-year U.S. Treasury yields lost seven basis points to 1.89 percent, while 30-year German bund rates reached a euro-era record low of 2.38 percent.
Italy’s 10-year yield increased 11 basis points to 6.796 percent. The government sold 3 billion euros of five-year bonds at an average yield of 6.47 percent, up from 6.29 percent on Nov. 14 and the most since May 1997. French 10 year yields decreased seven basis points to 3.19 percent.
Oil in New York fell massively, declining by 5.2 percent to $94.95 a barrel as the Organisation of Petroleum Exporting Countries agreed to raise its production ceiling, moving the group’s supply target nearer to current output levels. Silver plunged 7.4 percent, gold lost 4.6 percent to $1,586.90 an ounce and copper sank 4.7 percent.
The Dollar Index, which tracks the U.S. currency against those of six trading partners, advanced 0.4 percent to 80.543, gaining for a third day and reaching the highest level in 11 months. Norway’s krone weakened against 12 of its 16 main counterparts after the nation’s central bank cut its benchmark rates by more than economists forecast.
Economic calendar data releases that may affect sentiment in the morning session
09:00 Eurozone – PMI Manufacturing December
09:00 Eurozone – PMI Services December
09:30 UK – Retail Sales November
10:00 Eurozone – CPI November
10:00 Eurozone – Employment Change Q3
11:00 UK – CBI Industrial Trends Survey December
A Bloomberg survey of economists showed a median forecast of -0.40%, compared with last month’s figure of +0.60% the UK retail sales figure. A similar Bloomberg survey predicts a year-on-year figure of +0.30%, compared with last month’s 0.90%. This data is for retail sales excluding auto fuel.
A Bloomberg survey of analysts shows a median prediction of 3.0% year-on-year, unchanged from the previous figure for European inflation. The ‘core’ figure predicted is 1.60%, which also remains unchanged from the previous figure. The month-on-month expectation is for a 0.10% rise, from 0.30% previously.