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European Crisis

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EUR: To cut or not to cut; next week forecast

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Easy title for a complicated scenario: the EUR heads towards the ends of April easing against most of its rivals, as over the past few weeks, market players have been listening ECB officials bluffing on the benefits of a rate cut, and pricing it in. Market players already expect the Central Bank to take rates down from current 0.75% to 0.50%, a measly 0.25% cut.


With the economy on recession, and the OTM program accumulating dust, one should wonder how beneficial could be such rate cut. In fact, there are more chances that investors will take it as a last ditch effort, and will hardly provide support to EUR or increase the confidence in the ECB. A larger rate cut however, may provide some short term support to the common currency, but in the long run will do nothing to help solving the crisis, and will pass, leaving the fundamental picture unchanged.

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The fallen and the almost fallen in Europe, what's to come?

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After several years living the crisis, the European citizens are asking themselves how far the situation will worsen. Unemployment levels are at record highs across the zone. Spain (27.2%), France (11.5%), Italy (11.6%), Greece (27.2%), Portugal (16.9%) and the whole eurozone with 12% are in a desperate situation.

The misery index in the area remains at highs at 13.8 pts and the Eurozone Consumer Confidence just improved in April from 'comatose', at 23.50, to 'dramatic' at -22.30. Joseph Trevisani, WorldWideMarkets' Chief Market Strategist, explains in this article why the Europeans are so bad and what's to come.

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Europe, Fundamentals and Credibility

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eurozone

The latest spark of optimism regarding the EU and a crisis that is here to stay since late 2009 was triggered by the ECB in its September 2012 monthly meeting, when Mr. Mario Draghi announced the OMT. The pompous Outright Monetary Transactions’ name stood for yet another form of bond buying, this time unlimited but of course, only available for those willing to submit to austerity measures.

Following previous facilities programs, OMT came to provide sterilized bond purchases and not just plain QE; “sterilized” stands for manipulating the value of the currency, in this particular case, encouraging banks to shift balance reserves from the fully liquid current accounts into fixed term deposits, which are just another form of reserves.

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Economic recovery: Are we there yet?

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Fed

The financial crisis, which has been tormenting the world for the last six years, does not seem to be loosening its grip as we enter the second quarter of 2013. Whenever hopes for an imminent onset of a recovery are spurred by upbeat data in the US or the EU, they are soon undermined by some sudden downturn, such as the disappointing March US employment numbers, or by another Eurozone country imploding under the weight of debt, such as the recent escalation of the Cyprus crisis.

Even though all of the G7 countries are still struggling with the consequences of the economic meltdown, the Eurozone seems to be the most deeply affected. As soon as one of its distressed members is rescued (in the last moment, usually) by international lenders, another one catches fire or falls into relapse. The US seems to be faring better than the EU, with its GDP back to pre-crisis levels and falling unemployment. Will 2013 further bring out the differences in their paths to recovery?

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Caution

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