(menafn – ecpulse)
Pessimism dominated the market yesterday after the downbeat manufacturing and services data, which regenerated concerns that growth may weaken further in the coming period. In addition, the sentiment deteriorated more after the euro zone governments' debt widened in 2011 followed by confirmed recession in Spain, the thing that sent high yielding currencies south, led by the euro.
The sentiment remains fragile in the euro-area region, where any improvement seen might trigger temporal stability; however, the tension in the debt market must fade away for this stability to last and linger. From here our eyes remain focused on the indebted Spain, where the nation already slipped into recession with fears the government despite the deep austerity adopted most probably will not be able to boost growth alongside the adopted cuts, which is a risk that threatens the entire region.
A Spanish failure may cost the euro zone a lot, with possibilities the monetary union might collapse in case Spain falls; however, Spain is still far from falling, but at the same time a bailout for the fourth largest economy in the euro zone might trigger sharp pessimism and send the euro south.
However, fears eased yesterday after the European Central Bank's member Nowotny clarified that the economic conditions in Spain are improving, while the result of the reforms taken will become apparent in the coming six months, Ewald Nowotny told CNBC's "Squawk Box" yesterday.
Today, markets will track the Spanish bond sale, where the nation will auction bills with two different maturities; however, markets will wait for details regarding the yields and demand for Spanish bonds, where Spain is to be under test over short-term basis since the bills are with less than a year maturity.
Furthermore, eyes will also track the government debt figures in the United Kingdom, where the royal economy will release today the public finances for March, with expectations the kingdom's debt could have surged again despite the wide cuts adopted by the British government.
George Osborne, the British Premier, revised growth higher after presenting a fiscally neutral budget in March; however, Osborne also explained that the government will keep working on cutting the deficit in order to achieve the new targets set in the budget plan in March, noting that the government will attempt to cut an additional 11 billion pounds by 2017.
In general, volatility remains evident in the market, while we expect currencies to trade narrowly ahead of the debt report from the United Kingdom; however, after the report markets will move in line with the sentiment, where better than expected figures might trigger optimism today, while worse than expected data should weigh sharply on European markets, especially the pound.