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Draghi Has Done The Balancing Act – Nov 22

November 22, 2013

DAILY COMMENTARY

Yesterday market witnessed Euro making small recovery after Draghi came to its rescue following barrage of ECB’s offiical statement fearing deflation in the Euro-zone region at various forums. Basically this conflicting statement is nothing more than balancing act to arrest any extraordinary currency movement and apply breaks on possible uncertain market condition. It is evident that with the ongoing economic condition Europe cannot afford strong currency. This month Drahi is on record that in his monetary policy follow-up speech he has already shown his concern about possibility of deflation and in Europe and hinting that ECB could consider negative deposit rate and LTRO if necessary.
Importantly it is German economy that is providing breathing space to Europe, minor growth recovery in Spain is a mere book entry and not economic recovery in real sense to overcome the financial mess. France remains a bigger threat and Italy is unpredictable that can tilt o the worst. Banking sector reforms, growth, jobs and deficit are all unsettled European issues. In such an uncertain condition thinking of positive economic condition makes no sense. Europe is brittle.
Whereas, US economic numbers suggest that the recovery may have been delayed/slowed, but the overall performance is not too concerning. Jobs claim fell and this should encourage Payroll data due in two-weeks time. I think anytime market mood will suddenly turn Bullish for US Dollar.
Meanwhile, Pound Sterling continues to enjoy its ongoing strength, as economic condition continues to support British currency. UK borrowing has declined, which is a healthy sign indicating increase in revenue collection, two-major parameters of economy housing and manufacturing are providing enough support to push the confidence level high.

Twitter @asadcmka………

 

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