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Merkel-Sarkozy Meeting Announces a New European Economic Council; BoE Minutes and Jobs Data Released Today

Yesterdays Merkel-Sarkozy produced few of the expected results and now that this event risk is removed, market attention will start to focus more on macro data and potential intervention rhetoric from the Swiss and Japanese central banks as this would be one event that could re-introduce extreme volatility back into the markets. Dow Jones reported that the Swiss government is possibly planning a press conference for today so there is potential here for some market surprises. Yesterdays summit with the French and German leadership did not result in a plan increase to the scope of the EFSF (or the use of short term Eurobonds), so this could create more pressure for the SNB to engage in intervention measures. What Sarkozy and Merkel did do is discuss a new Economic Council to oversee the European economic recovery, but they suggested that the EFSF is large enough for the time-being, and there is not enough regional integration to implement a Eurobond program. There was also the proposal for all Eurozone nations to enact a deficit limit amendment to their respective constitutions before the end of 2012. Most of the market disappointment stemmed from the fact that the EFSF would not be increased. The EUR/USD sold off on the news and now trades at 1.4350-1.4420 while the USD/JPY remains heavy at 76.60-76.80. Todays main event is the release of the minutes from the last Bank of England meeting. In macro data, German GDP growth was much lower than expected, at +0.1% on a quarterly basis (estimates were for a rise +0.5%). Rising imports did some damage to the net trade figures, consumption dropped and construction growth slowed during the quarter. These factors contributed to the weaker overall figure and affected Eurozone GDP as well, which came in at 0.2% on a quarterly basis (estimates called for a rise of 0.3%). The Eurozone trade balance also missed estimates, coming in at 0.9 billion Euros. In England, the BoE Minutes will be released today, with many expecting the release to show that the two most hawkish members reversed their bias and actually voted to keep rates on hold during the last meeting. If this is true, it would mean that the board is now unanimous in their bias to maintain an accommodative monetary policy. Englands CPI came in higher than estimates, at 4.4% yearly. This forced the BoE Governor (King) to explain the reasons for this in a letter to the Chancellor, but there was little in it to move markets. UK labor figures will also be released today, as the claimant count probably increased by 20,000 with an unchanged ILO unemployment rate at 7.7%.

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