The Eurozone managed to pass through yet another obstacle yesterday as the German constitutional court gave its verdict in favour of the ESM, a key component required by the ECB to embark on their newly announced unlimited bond purchase program, termed as OMT or Outright Money Transactions. The verdict as expected did come out with some conditions, which capped Germany’s exposure to €190 billion and any amount exceeding that would have to go through the German Parliament.
The Euro was trading stronger and markets saw an upbeat momentum but it was quickly subdued as focus is now on the FOMC with the question whether Bernanke will outline any plans for QE3.
EU President Jose Manuel Barroso made a proposal yesterday to create a Single Supervisory Mechanism that would give the ECB sweeping control to oversee some 6000 banks across Europe. The commission is looking to have the SSM in place by January 1st, 2013, something which critics believe is too ambitious a deadline.
Meanwhile, early results from the Dutch elections is seeing the Pro-European party gaining a slim victory lead. With over 80% of the votes being counted, care taker Prime Minister, Mark Rutte’s center right liberal party is seen to have gained 41 seats while the center left labour party gained 39 seats.
Equity markets across Europe closed higher with the CAC40 gaining 0.18% and the German DAX closing 0.46% higher.
London FTSE Snapshot
The FTSE100 Index closed lower for the third consecutive day, down by 0.2% closing at 5782.08. BAE systems was on top of the index, having seen a rally of close to 11%. Banking sector was also seen to be one of the market movers on account of an upbeat market sentiment across Europe. Llyods Banking PLC added 3.9% while RBS added 4.37% across the board.
Amazon Inc, the online store based in the US announced plans to open a new research center in East London’s Tech City. It is estimated that the technology sector contributes to around 11% of the country’s GDP. Amazon’s plans comes hot on the heels of telecoms equipment giant Huawei who recently announced their £1.2 billion investment plan in the UK.
BAE and EDS, two of the biggest aerospace companies announced that they were in advanced merger talks the deal of which will make BAE own 40% of the newly merged company with EADS holding 60% of the company. However, there is a looming deadline of October 10th before which the deal must come through. The merger, if approved would combine £60 billion of sales with a work force of 220,000. BAE’s shares surged 10.6% while EADS lost 5.6% off the board. The merger would create a defence and security company that could make it competitive with other industry heavy weights such as Lockheed Martin and Dassault.
Yesterday’s data showed UK unemployment dropping in August.
Market News – Asia
Across Asia, regional indices have been trading in the red, in anticipation of the FOMC meeting later today. The Shanghai composite index came out lower by 0.5% while Australia’s ASX was down by 0.4%. The Kopsi dropped 0.2%. The Nikkei ws the sole performer, gaining 0.6%. The Hang Seng index remained mostly flat.
China has been taking the limelight for all the wrong reasons. Headline numbers showed that China’s export industry has been continously deteriorating. New data from the state administrative foreign exchange showed a sharp decline in foreign exchange income from the export sector.
Market News – US
US stocks could not hold on to their gains from Tuesday’s trading session, with Wednesday’s trading seeing most of the indices closing with modest gains. The markets did benefit from the news out of Europe in regards to Germany approving the bailout fund, however buying was mostly subdued as closer home, all attention is on the US Fed’s announcement. Investors are once again anticipating that Bernanke would endorse upon a fresh round of quantitative easing which could set the tone for the days ahead.
The announcement is due to be out at 1630GMT today with the minutes of the recently concluded two day meeting with policy makers. Later we will see the quarterly economic projections at 1800GMT followed by the news conference with Bernanke.
The Dow Jones Industrials closed 0.07% higher while the Nasdaq closed 0.21% higher. The S&P500 was the biggest mover, gaining 0.32%.
Report from the Labor department showed that the US import prices saw modest gains but fell below market expectations in August, despite a rebound in fuel prices. Export prices increased most than expected during the month with the agricultural sector showing a notable increase.
Wholesale inventories report from the Commerce department showed a rebound, coming out better than expected in July.
Facebook’s shares which hit rock bottom few weeks saw saw a rally, gaining almost 8% to close at a 1 month high on Wednesday. The stocks were trading at $20.93. The rally comes a day after CEO Zuckerberg made his first public appearance since the stock market debut in May.
US bond markets saw a bit of selling as some investors wanted to be out of the market before the Fed’s announcement. The benchmark 10 year notes rose to 1.76%.
The US Dollar was relatively weak against most of its counterparts ahead of the FOMC minutes. The EUR was trading 0.3% higher against the USD, trading at $1.2926, while GBP gained 0.1% at $1.6119. The Japanese Yen was stronger by 0.1% against the USD. The Australian Dollar gained 0.2% against the USD upon news that the Australian consumer inflation expectations came out flat.