Last week saw U.S. equities rally higher with the Dow touching 14,000 for the first time in over five years following a wave of decent economic data combined with the Federal Reserve’s decision to continue purchasing securities at a rate of $85 billion per month which helped to send the Euro soaring to the highest level since 2011.
This week the ECB and BoE (Bank of England) will hold interest rate meetings and on February 7-th.
Central bankers from the BoE and ECB are expected to wait for more economic data before deciding about any interest rate decisions.
Meanwhile, European leaders will conduct meetings on Thursday and Friday in Brussels to reach an agreement on the 27 member bloc’s upcoming seven-year budget.
It will be a second round for European leaders to reach an agreement on its €1 trillion ($1.37 trillion) budget for 2014-2020 after they had an impasse at their last meeting in November.
Spending cuts are expected to be a point of contention at the meetings.
Policies reached over EU’s seven-year budget are typically done after a tug of war between wealthier EU countries in northern Europe that are large contributors of the budget and poorer countries primarily in southern and eastern Europe that receive large sums of financial aid while contributing much less to the budget.
The EU summit can often provide a glimpse into the EU’s political mood and level of cohesion.
Last Thursday German Chancellor Angela Merkel said there were “difficult” issues to be resolve ahead of the EU summit.
Lately, there have been concerns raised about Cyprus receiving a bailout package and complications with Russian money.
SPAIN AND ITALY
In Spain a report surfaced from the Spanish newspaper El País, alleging Spanish PM Mariano Rajoy took some illegal payments that were kept hidden from authorities, an allegation rejected by Rajoy.
Nonetheless, the Spanish 10 yr. bond yield has risen .10 basis point today as speculation builds about whether PM Rajoy can retain his job.
Some political unease has also spread to Italy over concerns about the upcoming Italian election and whether Silvio Berlusconi can successfully mount a political comeback.
Berlusconi has recently pledged some major tax cuts, including a €4bn tax refund.
If Berlusconi is elected, there are lingering questions about the level of austerity he may embrace with Outright Monetary Transactions (“OMT”) which are outright transactions in secondary, sovereign bond markets in exchange for the acceptance of austerity measures.
The yield on the Italian 10 yr. bond has increased today by .09 basis points.