Debt ceiling worries
With an initial resolve for the debt problems in Europe, markets turn to the US as the political wrangling over the fiscal policy and the debt ceiling enters a critical phase. The US debt ceiling needs to be lifted until August 2nd but according to T.Geithner (US Treasury Secretary) the process of this change needs to start today if the deadline is to be met. The market doesn’t really worry about insolvency as this is not an issue here but a cut in the US triple-A ratings could do a serious damage to the markets (many institutions are required to keep only the highest rated papers and many companies could lose their triple-As as well) and it’s a real threat here as Democrats and Republicans seemed to be still far apart during the weekend. The US dollar was losing some value due to that risk before but now we see larger moves on USDJPY, USDCHF, equities and even EURCHF. One should notice that the USDCHF is approaching historical lows and should it fall below 0,8080 even more short-term pressure would be applied to the dollar.
EURUSD, EURCHF – Italy will test the market
European leaders, facing a wall, presented solutions which were about to save Greece, PIIGS and the euro zone. We think that these are better than before (we described those on Friday) but only time will tell if that’s enough. Meanwhile Italy is going to test market’s attitude to those measures auctioning debt this week (Tuesday to Thursday). One may notice that there is still a room for a gain following the recent summit – spreads are still clearly higher than they were at the end of June – after Greece accepted savings and before Italian phase of the crisis. So is the euro – EURCHF made up for just one-third of a preceding decline. However, the market might catch up only if there is a favorable sentiment and given a rising wave of worries in the US, it might not happen at the start of this week.
Events to watch – GDP, quarterly results
Monday has in fact no key positions in the calendar – it starts with Stevens (RBA’s president) speaking during Tuesday’s Asian trade. Therefore the focus will be on the US political scene. Macroeconomic data may attract some attention later in the week, especially with the US GDP and Chicago PMI on Friday shedding more light on the slowdown concerns.
We also have plenty of quarterly results and judging from experience that might be a major source of optimism. The key results for this week include United Technologies (today after the final bell), BP, Deutsche Bank (Tuesday), ConocoPhillips, Visa (Wednesday), DuPont, ExxonMobil (Thursday) and Chevron (Friday).
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Przemysław Kwiecień PhD, Chief Economist |
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Disclaimer, investment risk warning
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