Euro Mildly Weaker As Markets Stay In Consolidation

Markets continues to stay in consolidation mode in general. US equities pared initial loss and turned positive at closing and the recovery carried on in Asian markets. The euro is a bit weaker than other major currencies but so far the price actions in euro crosses look corrective.

A Financial Times report stated that that the EU has been in talks with the Spanish government over a possible rescue package. According to the report, the talks between 2 parties "are focusing on measures that would be demanded by international lenders as part of a new rescue program, ensuring they are in place before a bailout is formally requested." Yet, this was later denied by officials who said that the discussions were focused on structural reforms in the Spanish economy, not about austerity measures.

In Greece, it's expected that the debt-ridden country would secure another tranche of assistance. However, while Prime Minister Samaras has made some progress in reaching agreement on budget cuts with the Troika, it has yet to overcome challenges from his coalition partners. Democratic Left leader Fotis Kouvelis said that "the Troika must understand there are limits" to implement fiscal consolidation.

Meanwhile one of the party's MPs said he was setting up a movement to oppose implementation of austerity measures. Greece is not alone in facing severe opposition as adopting austerity measures means welfare would be diminished. In Portugal, popularity of the Portuguese Government slumped 12% to a record low after it lifted taxes.

In US, Minneapolis Fed Kocherlakota, a known hawk, changed stance and said that Fed "should keep the fed funds rate extraordinarily low until the unemployment rate has fallen below 5.5%" and he urged Fed to continue the open-ended MBS purchase until employment "improve substantially." Boston Fed Rosengren Fed's QE3 provides "significant additional support to the economic recovery" and "should result in stronger economic growth, and return us to full employment more quickly than would be the case absent the policies." Rosengren quantified that the natural unemployment rate from Boston Fed's position was at the lower end of 5-6% and he said the current rate is much higher than it should be "in the long run."

On the data front, Australia conference board leading indicator was flat in July. UK public sector net borrowing is expected to be at GBP 13.2b in August. Canada inflation data is the major focus today and CPI is expected to be unchanged at 1.3% yoy with core CPI dipped slightly to 1.6% yoy.