Financial markets fell in the red again amid concerns over disunity among European leaders regarding measures to deal with the sovereign debt crisis. Sentiment was not helped by EU's proposal on financial transaction tax. Wall Street fluctuated between gains in losses in early session by the selloff accelerated in the afternoon with DJIA and S&P 500 sliding -1.61% and -2.17% respectively. Commodities slumped on renewed fears about global economic prospects. The front-month contract for WTI crude oil plunged to as low as 80.54 before settling at 81.21, down +3.84% and erasing all gains in the previous day. The equivalent Brent crude contract slipped -3.12%. Gold tumbled on USD strength and aftermath of margin hike.
The EU proposed a financial transactions tax from 2014 which would raise about 57B euro. Stock and bond trades would be taxed at 0.1%, with derivatives transactions taxed at 0.01%. The plan aims to delivers 'a fair contribution from the financial sector'. Financial leaders were divided over the merits of the proposal. The UK has already signaled it would not join unless it's adopted globally. British banks warned that the plan would further reduce Europe's competitiveness as 'banks conduct transactions for their customers, therefore any tax on transactions would be an additional tax on customers'.
The split was also evidenced in other rescue plans. Regarding the proposal of getting banks to accept a bigger haircut than what was agreed on July 21, as many as 7 countries including Germany and the Netherlands support the plan as they call for 'more losses to be imposed on the private sector'. However, the EU disfavors the measure
It's Germany's turn to vote for the new EFSF on September, after it's been approved by both Finland and Slovenia today. The measure will likely be passed but the issue we care is the composition of those who vote for and who vote against it. It should give an idea on the extent of disunity in Chancellor Merkel's coalition government.
The dataflow took a backseat as all of the focuses were on options to resolve the European crisis. US durable goods orders contracted -0.1% m/m in August after rising +4.0% a month ago. Excluding transportation, the reading also dipped -0.1% against consensus of a +2.0% gain. Germany's CPI surprisingly climbed +0.1% m/m in September, compared with market expectation of a -0.1% drop and a flat reading in August. On annual basis, inflation rose to +2.8%, up from +2.4% in August. The unexpected rise in German inflation may make it more complicated for the ECB to implement easing measures next week.