Bell FX Currency Outlook: The Australian Dollar has opened this morning firmly above 1.0200 after a breakthrough in the EU summit in Brussels late last week. European bailout funds will be directly lent to Spanish banks (rather than to the Spanish government).
An increasing number of people are trying more ways to sneak money out of countries that are buckling under the weight of financial crises.
Australia: With the AUD touching its highest level since May 4, crude oil surged more than 7%, Spanish and Italian sovereign bond yields fell, gold rose to its highest level in four weeks and all major equity indices were higher across the board as the market digested the news.
The 17 European nations have agreed to allow the ESM (European Stability Mechanism) to use some of their approximately EUR500bn fund to capitalise Spanish banks directly rather than go through the process of lending funds to the Spanish government.
These loans will share equal status with other creditors' loans rather than the preferred status many had thought would never change. Over the weekend the official Chinese PMI reading for June came in slightly higher than expected at 50.2 which was down from 50.4 last month but still over that crucial figure of 50 indicating expansion.
Today in Australia we will see some inflation numbers and manufacturing PMI for June and house prices for May. Tomorrow we will see some building approvals figures for May followed by the RBA rate decision where we expect no change to the 3.50% cash rate.
Majors: With the German parliament the day after the summit endorsing the change in allowing bailout funds to be used directly to strengthen the Spanish banks other European nations should follow. Another meeting of European finance ministers is scheduled for July 9 to iron out the details.
Also agreed at the summit was the establishment of a single bank supervisor for the EU which is to be in place by the end of 2012. This news sent the German DAX share index up by 4.3%, the Euro Stoxx 50 index by 5% which followed through to the US markets with the Dow up by 2.2%.
It is also widely expected that when the ECB meets on Thursday they may reduce the cash rate of 1% by 25 or 50 bps to further stop the recessionary environment of Europe from worsening. It is also speculated that banks which park excess funds with the ECB and earn 0.25%
currently will receive no interest on their funds in an attempt to encourage more lending.
02 JULY AU AiG Performance of Manufacturing Index JUN
JN Tankan Report 2Q
EU PMI Manufacturing & Unemployment Rate MAY
CA Canada Day Public Holiday
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