The Merkozy alliance appear immune to the noise outside of the insular tent created for them by their various Eurocrats and mandarins. The economy of Europe is on a knife-edge and their message continues to be centred on “fiscal discipline”. Paris and Berlin apparently need to win backing quickly for their plan to amend the European Union’s Lisbon treaty in order to toughen budget discipline.
An overhaul of the euro zone’s fiscal rules would boost the chances that the European Central Bank, which is expected to cut interest rates and announce new support measures for banks later on Thursday, would intervene more aggressively to calm the crisis. However, this overhaul could take a while, summit chairman Herman Van Rompuy is urging leaders to avoid a laborious treaty change that could take up to two years by ‘slipping’ stricter budget enforcement in through in a protocol to existing treaties.
With many details still to be hammered out, doubts that the leaders can agree on a plan weighed on shares in Asia on Thursday but European stocks opened higher on hopes of a deal by Saturday morning, while the euro was steady. With financial market doubts hanging over the euro zone’s EFSF financial rescue fund, many economists say that the most effective way of getting a grip on the crisis would be for the ECB to buy euro zone government bonds more aggressively.
The ECB’s policy-making governing council will announce its policy decisions at 1245 GMT, with economists widely expecting a quarter-point interest rate cut to a record low of 1.0 percent, and moves to give banks longer-term liquidity on easier collateral terms.
Separately, the Bank of England will keep the size of its asset-purchase program unchanged at 275 billion pounds ($432 billion) and leave its key rate at 0.5 percent, according to another survey of economists. That decision is due at noon in London.
The ECB’s insistence that governments take measures to restore investor confidence appears to have paid dividends, with Italian and Spanish yields plunging after Germany and France agreed to move the 17-nation euro area toward a fiscal union, a stance they reiterated yesterday.
Euro-area governments have to repay more than 1.1 trillion euros ($1.5 trillion) of long- and short-term debt in 2012, with about 519 billion euros of Italian, French and German debt maturing in the first half alone, data compiled by Bloomberg show.
European stocks rose for the first time in three days and oil climbed on speculation policy makers will reduce borrowing costs and introduce new ways to tackle the region’s debt crisis. The Stoxx Europe 600 Index advanced 0.5 percent as of 8:15 a.m. in London. Oil added 0.5 percent to $100.94 a barrel. Yields on German 10-year bonds rose one basis point to 2.11 percent. The Nikkei 225 Stock Average dropped from a one-month high and the so-called Aussie dollar fell against most of its 16 major counterparts after reports showed unexpected declines in Japanese machinery orders and Australian employment.
Market snapshot at 10:15 am GMT (UK time)
Asian markets fell due to weak data in the early morning session, the Nikkei closed down 0.66%, the Hang Seng closed down 0.69% and the CSI closed down 0.13%. the ASX 200 Aussie index closed down 0.27%. European bourse indices have been mostly positive in the early morning part of the European session, the STOXX 50 is currently up 0.53%, the UK FTSE is up 0.33%, the CAC is up 0.42%, the DAX is up 0.8%. Brent crude is up 0.71% at $110.31. Gold spot is down $0.93 per ounce at $1740.88. The SPX equity index futures is currently down 0.18% at 1271.7.
Economic calendar release data that could affect sentiment in the afternoon session
13:30 US – Initial and Continuing Jobless Claims
15:00 US – Wholesale Inventories October
A Bloomberg survey forecasts Initial Jobless Claims of 395K, compared with the previous figure released which was 402K. A similar survey predicts 3700K for continuing claims, compared with the previous figure of 3740K.
For wholesale inventories a Bloomberg survey of economists gives a median forecast of a month on month figure of 0.3%, as compared with the last figure of -0.1%.