Monetary union, fiscal union, political union… “that which we call a rose by any other name would smell as…. … “ - William Shakespeare
While the weekend press in the UK was full of the potential implications and ramifications of the UK after its veto of the new EU treaty on Friday, the focus of market attention this week is likely to come back towards a monetary union that promised fiscal union and despite the fact that there was the promise of a further EUR200 billion funding via the International Monetary Fund, the lack of detail as to where this money is going to come from and the distinct lack of any specific areas of progress, the issues surrounding the Eurozone today look remarkably similar to that of last week, or the week before!
“All that glistens is not gold”
After a risk rally into the EU summit at the end of last week, the markets have not really given anything back. Though there is still the possibility that the EU builds on the (still fragile) basis of a ‘fiscal compact’, the promise that the fiscal imprudence and divergent competitiveness will not happen again within the union are not the same as forming a plan for repairing confidence in the finances and structure of the Eurozone itself. While this week is likely to highlight a growing illiquidity there confidence may begin to wane as further detail (or lack of) emerge this week.
“Parting is such sweet sorrow”
Political infighting in the UK’s coalition government will likely continue to be propagated by the popular press however, while Deputy PM and his Liberal Democratic party have seemingly changed tack and began to decry the Prime Ministe'rs decision to veto the treaty change two opinion polls over the weekend suggesting that the populace is resoundingly in favour of David Cameron's actions mean that it is unlikely that Messrs Clegg and Cable ‘stamp their feet’ for too long.
“I say there is no darkness but ignorance”
Interestingly the UK trade data on Friday highlighted a strong boost to the external position as it narrowed by a record amount in October as exports rose 9.0 percent, lead by a record level of exports to non-EU countries (GBP12.6 billion) taking the total deficit (goods and services) to just GBP1.552 billion (from GBP4.298 billion in September). I am increasingly confident that the UK’s glass is half full
“Boldness be my friend”
On the other side of the Atlantic, the improvement in the macroeconomic backdrop in the US seems to have been largely overlooked as the latest chapter of the Eurozone debacle played out. The reality of the situation however is that the US is now likely to post a significantly higher GDP print for Q4 than would have been believed as recently as two weeks ago. This is an interesting dynamic as we move into the last couple of weeks of the year. There is a raft of US data this week and further confirmation of an improving backdrop is likely to see further gains for the USD – particularly if Congress makes progress on extending the payroll tax cut that expires at the end of the year.
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