The catalyst for the sharp rise in Equities, Commodities and of course the EUR was the talk of a banking license for the European Stability Mechanism (ESM). The ESM is supposed to replace the EFSF as Europe's permanent rescue fund but the German Constitutional Court postponed their decision on approving the ESM to September. Nonetheless, given the deeply oversold nature of the euro, any news was good news. To give the ESM a banking license would mean that they would be able to accept collateral from Spain, Italy and other debt laden countries and borrow directly from the ECB.
In another comment made early yesterday from a FOMC member out of the US, she specify that another round of quantitate easing will be discussed in the upcoming FOMC meeting.
Follow this news, Spanish 10 year bond yields were down for the first time in 10 days. Spanish and Italian stocks also rebounded after dropping more than 10% since the beginning of the month.
Out of the US new home sales on the other hand dropped 8.4% in the month of June, which was the steepest slide since February 2011. The total number of homes sold slowed to 350k from 382k while the average price fell 1.5%.
Going forward, The 2012 Olympic Games starts in London in two days and, according to some reports, are projected to cost British taxpayers more than nine billion pounds, with a hoped-for return of 13 billion pounds over four years (as suggested by Prime Minister David Cameron). That seems like a pretty big gamble as Britons struggle with recession, rising unemployment and severe public-spending cuts.
Data released today (Wednesday) shows that Britain's GDP dropped further into negative territory to levels seen in mid-2009, as shown on the graph below.
EUR/USD The euro enjoyed its strongest one-day rally against the U.S. dollar since the beginning of July. While we would love to see the EUR/USD bottom but without any major change in the economic outlook or without any permanent solution, yesterday's recovery was nothing more than a relief rally.