As Europe stagnates, Merkel/Sarkozy break bread

The S&P futures started to roll over at 2am after Germany reported a Q2 GDP gain of just .1% q/o/q, well below expectations of up .5%. This follows no growth in France q/o/q and as a whole, the Euro region grew .2% from Q1 vs the estimate of .3%. The European stocks are lower across the board and the euro is following. Thanks to the helping hand of the ECB, Spain sold 12 and 18 month bills at yields 30+ bps below last month. Merkel and Sarkozy break bread later and all eyes are on what muscle they bring to the table in terms of money to further backstop the over indebted countries of the Euro Zone. Will they enlarge the EFSF, will Merkel budge on the Euro bond? One thing is for sure, if yes to the above, the Germans will come only kicking and screaming. In Asia, inflation is still the focus as the Chinese yuan rose again to a new high (fast becoming the key PBOC policy tool to correct imbalances and quell inflation) and India’s wholesale inflation figure rose 9.22%, although was the slowest since Nov.

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