The euro enjoyed one of its biggest one day gains in the last 3 years after the markets were given hope of a solution to the long running euro zone sovereign debt crisis after a Franco-German agreement to tackle the euro zone debt crisis in an otherwise quiet news day.
German Chancellor Angela Merkel and French president Nicholas Sarkozy pledged an agreement over the weekend for a “long-lasting, complete package” to tackle the ongoing debt crisis with details to be announced at a euro summit scheduled for the end of October.
Merkel and Sarkozy said details of plan to recapitalise euro zone banks and address the Greek debt crisis will be announced in the next few weeks after technical details were ‘ironed out’.
Analysts at Citigroup explain that the bilateral meeting between Merkel and Sarkozy provides the destination but not the route to it.
In a further boost to the euro zone, the Russian government is negotiating the possibility of buying Spanish debt, according to an economic adviser to President Dmitry Medvedev.
The Bloomberg news agency reports that Spain’s Economic Minister Elena Salgado met with the Russian Minister of Foreign Relations Sergei Lavrov and former Finance Minister Alexei Kundrin to discuss this and other issues.
Overnight, data from the British Retail Consortium showed UK retail sales values were 0.3% higher on a like-for-like basis from September 2010 when sales had risen by 0.5%. On a total basis, sales were up 2.5%, against a 2.2% increase in September 2010. In August 2011, retail sales values fell 0.6% on a like-for-like basis from August 2010.
Stephen Robertson, Director General, British Retail Consortium commented , “In these harsh times, we have to be thankful for this minor improvement in growth compared with August but underlying conditions remain weak. Spending growth is below inflation meaning customers are buying less than this time last year. And there’s no guarantee next month’s figure will be better. Total sales growth has been flipping between 1.5 and 2.5 per cent for four months now and year-to-date like-for-like growth is zero.”
In a further sign of the deteriorating economic recovery in the UK, Bank of England Monetary Policy Committee (MPC) member Martin Weale in an interview yesterday said that the MPC has “quite a lot of scope” for further quantitative easing if it’s deemed necessary to buttress economic growth.
Weale added that there are similarities to the 1930s and that, “the case for support has grown in the autumn as the financial situation has appeared to deteriorate,” adding that, “what we have seen since the summer is a sharp deterioration in Britain’s economic prospects.”
It is worth noting that as recently as last July Weale was asking for higher interest rates.
Today and tomorrow sees a whole raft of UK economic data published, none of which is likely to be sterling supportive. In particular, the markets are expecting to see the worst UK unemployment data for 17 years published tomorrow.
