Another day of calm in Europe is the catalyst for the positive bias in the futures. Italian and Spanish CDS are at 2 week lows, bond yields are little changed, the euro basis swap is in by another 5 bps and European stocks are higher (although banks are mixed). In terms of the ECB actions over the past week which was the main reason why things have stabilized, we can quantify them today as the ECB will release how much in purchases they made and they are also implementing a 7 day term deposit to sterilize their purchases. It is this sterilization that separates the ECB from the Fed and the reason the euro is above 1.40 vs the US$ instead of something much lower. On the flip side, it is these sterilizations that some believe lessen the impact of the bond purchases. Print or not to print? That is the question for central bankers. Japan’s Q2 GDP fell 1.3% which wasn’t as bad as the contraction of 2.5% that was expected. The Chinese yuan fell a touch after 5 straight days of record highs and the Swiss franc is also down as the Swiss Gov’t and the SNB seem close to an agreement to temporarily peg their currency to the euro. In the US, the NY mfr’g survey today will be the 1st Aug industrial number out that will capture the turbulent goings on over the past few weeks.
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