The battle of rhetoric

The battle of rhetoric across the Channel is heating up, not least in the tactical duel between Spain and the European Central Bank. The ECB says it will provide unlimited support for Spanish government bonds only if Spain makes a formal request for bailout aid. Spain says it will consider making that formal request only if the ECB is supporting its bonds.

For the moment though, this brinkmanship is not unsettling investors. On Friday they were obviously looking on the bright side, optimistic that September would bring the Club Med debt crisis to a tidy conclusion when all the leaders returned, refreshed, from their summer holidays. The euro was the day’s gold medallist, adding two cents against the US Dollar and two Japanese yen. Sterling lost a cent and a quarter to the euro but strengthened by one US cent and one yen. It is firmer against the Canadian dollar, weaker against the Aussie and unchanged against the New Zealand dollar.

The services sector purchasing managers’ index-fest awarded better-than-expected marks to Euroland and the States. The UK reading fell fractionally short of target at 51.0 but was still better than the euro area figures. Another positive surprise came from the US employment report. Non-farm payrolls rose by 163k in July, many more than the forecast 100k. Investors reacted by buying the dollar against the yen and selling it against the euro, the pound and the commodity currencies. The logic this time equated jobs growth in America with the euro’s imminent salvation to equal global economic joy and a shift from safety-first to profit.


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