New bailout pot for Spain and Italy?
- New coalition for Greece?
- More stimulus from the BoE and the Fed?
There was an amusing moment at the G20 conference when Argentina's President Cristina Fernandez de Kirchner buttonholed Prime Minister David Cameron outside the gents' loo. She attempted to hand him a package of documents detailing her country's intention to nationalise the Falkland Islands penguin industry. Oh, and the oil reserves which have recently been discovered thereabouts; she has previous on this one, as Spain will attest. It looked rather like a ham-fisted trainee bailiff trying to serve a writ on a wily old scoundrel who knew better than to lay a finger on the document.
Another writ aimed at Europe seemed to hit its mark though. US President Barak Obama led a cadre of nations demanding that Euroland's leaders extract their collective digit and sort out the mess that is euro area sovereign debt. The collective view of journalists covering the meeting is that Brussels and Berlin are ready to put their signatures to a deal. Apparently it would make €600bn (or €750bn, depending upon which paper is telling the story) available to buy Spanish and Italian government bonds.
To describe the details of the plan as sketchy would be to exaggerate their completeness, but the revelation did at least provide the euro with a new straw at which to clutch. There was another hint that something was afoot when it emerged that Brussels intends to hone its bailout skills by forcing a €10bn rescue on Cyprus. Like Spain, the Cypriot government is reluctant to take the EU money, because of the demanding strings which would come attached to it, and is hoping to secure another loan from Russia. Either way, though, Cyprus's banks are likely to get the capital injections they need to survive.
The mood of investors on Tuesday was to give the euro the benefit of the doubt. Since yesterday morning it has added a US cent, half a Japanese yen and a British farthing. The relaxation also allowed energy, commodity and equity prices to claw back some of their recent losses. The Canadian, Australian and New Zealand dollars all moved higher against the US dollar and the pound.
Sterling's day was spoiled early on when the UK inflation numbers came in lower than expected. The consumer price index rose by just 2.8% in the year to May and on the month itself prices were down by -0.1%. Seeing inflation back within its 1%-3% target range, investors jumped to the conclusion that the Bank of England's Monetary Policy Committee could be teeing up a Bank Rate cut, a new round of quantitative easing or both.
Some of their curiosity on that score will be satisfied this morning by the minutes of the June MPC meeting. They coincide with the latest UK employment figures and are followed 90 minutes later by the Bank's Quarterly Bulletin. There is hardly anything else on the agenda until the US Federal Reserve's policy announcement and press conference this evening. If the Fed announces further monetary stimulus the dollar is likely to fall; if not, look for it to strengthen.
Today's wild card – yet again – is the Greek political situation. In theory the leader of New Democracy has only until lunchtime to form a coalition. And we all remember what happened when he failed to do so six weeks ago.