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12 Apr 2013
Forex Flash: Mild risk off tone to European markets - TD Securities
FXstreet.com (Barcelona) - TD Securities analysts note that there has been a mild risk off mode to the European morning session with questions over whether Cyprus is asking for more money.
They add that newswires initially reported that the Cypriot President had confirmed that he would be asking for more money for the structural aid package and that he had sent a letter to ECB President Draghi stating their case. However, they see that the German finance minister has stated that the original €10bn bailout will not be renegotiated and that extra aid is “not in discussion”. This was later confirmed as a finance ministry official confirmed that the extra help President Anastasiades would ask for would be for structural and technical assistance to restore the economy to growth, not an increase in the size of the bailout.
They feel that today´s Eurogroup meeting is likely to remain a major focus with extensions of up to seven years to the Portuguese and Irish aid programmes on the agenda. They also see that there is also discussion of the FT article released overnight that stated that even with an extension of the programme, Portugal could struggle to avoid a second bailout. They write, “Discussions are also likely to continue surrounding the role of the ESM in covering banks’ legacy assets according to reports with Handelsblatt reporting that an EU official stated that discussions are “going in circles” with Spain and Ireland insisting on the ESM covering legacy banking assets and Germany objecting. Any resolution to these banking issues would be seen as a positive step forward and would likely lead to a more positive sentiment and risk rally.”
They finish by noting that most currencies have seen mild risk off moves with EUR/USD falling from an intraday high of 1.3120 to below 1.3050 and USDJPY falling back below 99 before reverting back to 99.15 at the time of writing. European peripheral bond spreads have also widened slightly with both Italian and Spanish spreads to bunds widening around 10bp this morning while European equity markets are universally lower on the day.
They add that newswires initially reported that the Cypriot President had confirmed that he would be asking for more money for the structural aid package and that he had sent a letter to ECB President Draghi stating their case. However, they see that the German finance minister has stated that the original €10bn bailout will not be renegotiated and that extra aid is “not in discussion”. This was later confirmed as a finance ministry official confirmed that the extra help President Anastasiades would ask for would be for structural and technical assistance to restore the economy to growth, not an increase in the size of the bailout.
They feel that today´s Eurogroup meeting is likely to remain a major focus with extensions of up to seven years to the Portuguese and Irish aid programmes on the agenda. They also see that there is also discussion of the FT article released overnight that stated that even with an extension of the programme, Portugal could struggle to avoid a second bailout. They write, “Discussions are also likely to continue surrounding the role of the ESM in covering banks’ legacy assets according to reports with Handelsblatt reporting that an EU official stated that discussions are “going in circles” with Spain and Ireland insisting on the ESM covering legacy banking assets and Germany objecting. Any resolution to these banking issues would be seen as a positive step forward and would likely lead to a more positive sentiment and risk rally.”
They finish by noting that most currencies have seen mild risk off moves with EUR/USD falling from an intraday high of 1.3120 to below 1.3050 and USDJPY falling back below 99 before reverting back to 99.15 at the time of writing. European peripheral bond spreads have also widened slightly with both Italian and Spanish spreads to bunds widening around 10bp this morning while European equity markets are universally lower on the day.