Europe’s economic plight suffered another blow overnight after the German Constitutional court further delayed the ratification of Europe’s permanent bailout fund, the European Stability Mechanism. In what could be lengthy delays, opponents of the ESM are attempting to foil the permanent rescue fund, while ironically European leaders are busily putting the fund to work in an effort to shore-up confidence in the region.
With a great deal riding on the successful implementation of the permanent rescue fund, news of delays undermines recent initiatives which rely on the fund’s EUR500 billion capacity, including the latest plan to recapitalize Spanish banks. Meanwhile, European finance ministers have agreed to provide an initial instalment of EUR30billion to recapitalise Spain’s ailing banking sector with the first disbursement of funds to come from regions temporary bailout fund. The total amount of provisions set aside will remain at EUR100 billion, but a final figure will not be known until July 20. Ministers also agreed to allow Spain additional time to meet the strict budget deficit targets to 2.8 percent of GDP by the end of 2014 and placed lower deficit targets on 2012/13.
True to form, European dramas dominated proceedings in the U.S with the DOW and S&P finishing down 0.65 and 0.81 percent respectively. It was another session of milestones for currencies with the Euro falling to fresh 2-year lows against the greenback and euro-era lows against the Australian dollar. After falling on the back of Chinese trade data yesterday, the Aussie dollar regained ground in early European trade before falling to lows of 101.59 with both Spain’s bailout and the ESM delays the key catalysts. At the time of writing the Australian dollar is buying 101.85 US cents with support eyed around the 101.5 US cent region. Short positioning was increased after yesterday’s breach of 102.4 US cents suggesting the bears remain in control ahead of key data from China later this week. Local data due for release this morning is Westpac Consumer Confidence at 1030am AEST and Home loan activity at 11.30.