1. European Equities Rally Into the Weekend: European equities saw some relief today as the attempt by several European countries to impose naked-short selling especially on financial firms, helped to spark a rally. We will see how long this rally lasts but at least we head into the NY morning with positive risk sentiment. US futures ground higher prior to the New York open.
The EUR/USD pair, after dipping overnight recovered from around the 141.50 level, and came close to matching its highs from yesterday near 1.4275, as we began the New York trading session.
From Marketwatch: "European stock markets pushed higher Friday as investors snapped up some beaten-down financial and commodities stocks, though volatility remained high and Germany's ThyssenKrupp AG fell after missing earnings expectations.
Bank stocks remained the focus of attention after France, Spain, Italy and Belgium all introduced various short-selling bans."
"While the ban on short-selling equities may support share prices for a day or two, unfortunately it is highly unlikely to prevent a further sell-off," said Manoj Ladwa, senior trader at ETX Capital.
"While they may not be able to short-sell, any rally in stocks will only give traders the opportunity to close out of existing positions," he added."
This type of approach - banning naked short selling - was tried by the US in October 2008, and during a couple of periods in Europe. It's an attempt by authorities to squash what they say are speculative rumors that have caused precipitous declines in European financial stocks. However it is a slightly desperate ploy to try and stop the decline in equities.
2. Industrial Production Falls in June: In a negative fundamental release for the euro zone we saw industrial production for the month of June fall by 0.7% that was much weaker than the expectation of 0.1% rise. that shows the pressure that manufacturing has come under over the last few months, both as a result of the supply-side disruptions in Japan but also the increasing worries and hit the confidence from the sovereign debt crisis.
3. French Data Weak: data from France showed that the gross domestic product of the country was unchanged for the first quarter, that was weaker than expectations. In the second quarter growth had risen 0.9%. this comes at an awkward time for France as it has been the subject of rumors that its credit rating is in danger and France is trying to reduce its deficits to 5.7% of output this year and 4.6% in 2012. Weaker growth will make that job harder.
From Bloomberg: "The French government expects the economy to grow 2 percent this year and 2.25 percent in 2012. The IMF predicts growth of 2.1 percent and 1.9 percent. Schulz said France's long-term growth prospects remain "intact" because of the lack of any real-estate or credit bubble."
"Next week's release might show that Germany performed a bit better, but with Italy and Spain barely growing, the euro- zone as a whole will have managed only a very modest expansion in the second quarter," McKeown said in a note to clients. "As for France itself, the 0.7 percent drop in consumer spending was the sharpest in nearly 15 years, suggesting that the household sector can no longer be relied upon to support the economy."
Chief Market Analyst