The ECB is likely to keep its key interest rate in place today when it announces its monetary policy at its monthly meeting. When the press conference with ECB President Mario Draghi starts questions will certainly be asked about the financial crisis and Sovereign Bonds yields. Political concerns in Spain and Italy the past few days have made what had become a tame bond environment rather delicate and Mr. Draghi does not want to see the bond market become more fragile.
There is however another subject that Mario Draghi will likely have to address and that is the value of the Single Currency compared to other major currencies. The EUR remains within the upper reaches of its value against the USD. And while a strong EUR may be something some European officials want to brag about, behind closed doors it is certainly not something that will gain a lot of smiles from the European export community. While stability and the mystic like zen that has been achieved via the confidence game the ECB has participated in is wonderous, the value of the EUR will not help spur on GDP. A stable currency is one thing, a currency that is over valued however can produce headaches and an inability to achieve growth.
The glitch in the ECB mechanisms is the monetary policy via the Fed and the Treasury in the United States. Too many dollars are being printed and this has weakened the USD. While it is clear the U.S. wants to continue to make the Greenback weak in order to help the American economy it is not exactly helping friendly competitors such as Europe. Added to the fire recently has been the Japanese policy of weakening the JPY. While it is not quite a currency war, the land is beginning to become treacherous and debates about forex values and their effects domestically versus internationally are starting to become louder from global finance ministry offices.
The net effect is that the ECB almost appears in a frozen state unable to really act. While it may in fact be the right policy to issue an interest rate cut, the European Central Bank can hardly move. The ECB knows full well that it has not completely conquered its financial crisis, and if Spain or Italy lurch into politically dangerous waters in the coming months fissures could become canyons.
Besides the ECB spotlight today, Germany will publish Industrial Production data. Yesterday’s German Factory Orders met expectations and tomorrow Trade Balance numbers will come from the nation. Also of interest today is the BoE and its monetary policy predicament. The U.K. economy has been languishing the past few months and is nearly recessionary. The GBP has been trading consistently weaker and this trend has been noticeable.
Gold as of this morning is near 1680.00 USD. Crude Oil has found a momentary consolidated ground. Inventory data from the U.S. showed a steady supply of stockpiles for the commodity yesterday. Weekly Unemployment Claims figures will come from the U.S. today and later today Charles Evans, the Chicago Fed President, is scheduled to conduct a television interview.
The markets appear rather cautious. While equities trade near their highs there appears to be a rather large contingent of investors who are still expressing doubts about the overall health of economic conditions and the long-term implications.