Risk sentiment is doing surprisingly well at the start of this week after Friday's late downgrades to Italy and Spain's credit ratings, and the weekend news of Dexia bank's demise. Much of the optimism in the face of such negative developments can be attributed to Sunday's joint press conference from Merkel and Sarkozy in Berlin yesterday where they reassured markets that their ambition is to agree on a plan to stabilize the Eurozone by the end of the month, and that they already agree on the issue of recapitalising Europe's banking sector. There are two good things to take away from this statement; one is that bank recapitalisation is a priority for Europe's leaders which bodes well for the financial system should Greece suffer a default, but secondly the unity and convergence of opinion comes as a refreshing and encouraging sign against the backdrop of prior divergence and disjointed action. Short EURUSD positions have therefore been squeezed during the Asian session, with the pair only a short distance now from the 1.3500 level.
Obviously, until Eurozone leaders officially announce a plan and demonstrate their ability to put it into action, there are still tremendous risks afoot. Asian equity indices have certainly taken a cautious attitude to the news, with the Hang Seng -0.5% on the day, and Shanghai Composite also -0.5% (given the public holiday in Japan, the Nikkei is closed).
Looking ahead to this morning's European session, we kick off with Swedish industrial production which is expected to come out at -1.5% MoM, 10.0% YoY after last month's reading of 2.8% MoM, 8.2% YoY. Shortly afterwards we are due to get Norwegian CPI for September, which is likely to rebound after last month's depressed -0.6% MoM, 1.3% YoY figure. Consensus estimates are forecasting this month's numbers will rise 0.5% MoM, 1.3% YoY.