FX open: Euro rises in spite of pressure on periphery debt

By Francisco Miñana

Date: Wednesday 13 Jun 2012

European markets started Wednesday's session on a bright note but investors will remain highly alert to the sovereign debt markets following yesterday’s attack on Spanish and Italian debt.

Spain’s risk premium is at 525 basis points and Italy’s now at 470bp. The Spanish 10-year bond yield has a dangerously high yield of 6.74% while the German bund is at 1.48%. The debt crisis is showing no signs of coming off the boil despite the Spanish banking sector bailout. The contagion is alive and well as investors always ask, who’s next? Some are urging for the creation of Eurobonds while Merkel resists.

Europe's main equity benchmark indices have opened with an average gain of 0.15%.

In the foreign exchange market, the euro is rising versus the majors. The euro/dollar holds on to 1.2500 in spite of the peripheral debt problem. The euro/yen remains below 100 and the euro/sterling rate rebounds from 0.8010. Nordic currencies rise versus the euro and the dollar. The pound is relatively weaker due to deteriorating macroeconomic indicators in the UK. Carry trade currencies rise versus the greenback and the yen.

On the macroeconomic front, Japanese machinery orders surprised to the upside (+5.7% monthly and 6.6% on an annual basis). In France, Germany, and Spain, consumer price index (CPI) readings for May were in line with estimates and indicated that inflation is moderating due to falling demand and constrained energy costs.

Coming up in the United States there will be retail sales, producer prices, and business inventory data. The monthly budget for May was released yesterday and revealed a slightly lower than expected deficit of -124.6 billion dollars.

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