Last week European Central Bank President Mario Draghi’s said that policy makers will do whatever is needed to preserve the euro.
This week global markets will watch to discover if the ECB is ready to take any actions to assist struggling countries in the euro area and reverse an economic downturn that threatens to bring a recession to a host of countries.
Global markets are still awaiting the implementation of Europe’s permanent rescue fund, the €500 billion ($616 billion) ESM which has been delayed as a result of a legal decision that is needed by Germany’s Federal Constitutional Court on Sept. 12.
After Spain’s 10 yr. bond rose last week to the record level of 7.75%, an unsustainable level, combined with the uncertainty surrounding the ESM and Germany’s rising pessimism about Greece and the cohesion of the Euro area, ECB Mario Draghi was under pressure to signal that the ECB stood ready to act.
Following Draghi’s positive comments to preserve the Euro, leaders from France and Germany backed Draghi’s pledge and offered to do whatever is necessary to preserve the euro.
Spain’s 10 year yield have fallen since its high last week and is currently at 6.71% early this Monday morning.
Now that the ECB President Draghi has put his word and reputation on the line, global markets will wait to see what actions he plans to take and what type of goodies he pulls out of his bag.
The list of Draghi’s proposals includes more bond buying, interest rate cuts, and cheap bank loans. Europe’s rescue fund would buy government bonds on the primary market while the ECB purchases on the secondary market to ensure the transmission of its record low interest rates.
Last week Germany’s Bundesbank voiced its opposition to the ECB undertaking bond buying because it blurs the line between monetary and fiscal policy.
Draghi will hold talks with Bundesbank president Jens Weidmann in the coming days.
Draghi meets with U.S. Treasury Secretary Timothy Geithner in Frankfurt later today.
The European Central Bank’s Governing Council meets in Frankfurt on Thursday.
Economists are still questioning whether future easing measures taken will be enough.
Earlier today Moody’s said the ECB can buy time for euro area policy makers, but it can’t resolve the region’s debt crisis.
New data released today from Spain’s national statistics office shows that Spain’s GDP was -.04 in the Q2 versus -0.3% in Q1 which marks the 3rd consecutive quarter of GDP contraction.
Spanish GDP contracted 1% on an annual basis.
U.S. Week Ahead
The Fed Reserve will engage in a two day meeting at the beginning of the week, followed by a monetary policy announcement on Wednesday.
Some of the economic data that will be released includes the latest numbers on consumer confidence, personal income, and spending.
A report on July auto sales is due out on Wednesday.
On Thursday the ADP report will provide a glimpse into the job market followed by Friday’s closely watched jobs report.
Economists are expecting 100,000 jobs added in July.
In June the U.S. added only 80,000 jobs, barely an improvement over the 77,000 added in May.
The U.S. employment level is expected to hold steady at 8.2%.