Markets Tread Water as EU Decision on Rescue Plan Delayed

Markets are cautiously staying in tight range for the moment as traders are refusing to bet on either side ahead of the highly anticipated EU summit. It's known that German and France are having much differences over issues of boosting EFSF, bank recapitalization and hair-cut of Greek debts. No agreement was reach so far and the two leaders then called for a second summit on October 26, where the details of the so called "comprehensive and ambitious" package would supposedly be finalized. It's now quite impossible there will be concrete conclusion on Sunday and it remains doubtful of any meaningful decision before G20 summit early next month. The uncertainties would continue to be reflected in range trading in most markets.

S&P warned that France, together with four Eurozone nations - Spain, Italy, Ireland and Portugal - could be downgraded by one to two notches if the region slips into recession and as government debt increases. S&P noted that in a stress-test report that study two possibly scenarios, a double-dip recession and a recession with high interest rates. S&P said that while the stress scenarios are not the company's "central expectation" but "France would likely be downgraded to 'AA+' from 'AAA' because of a deteriorating fiscal position, even if the amount of stress applied remains modest."

While most pairs are stuck in range, Swiss franc is notably strong across the board. This could be attributed to fading speculation that SNB would the floor in EUR/CHF after a string of solid economic data. Note that released earlier this week, trade surplus in September widened to CHF 1.85b with imports posting impressive gain of 9.5% yoy. The ZEW economic confidence indicator also showed significant improvements to -54.4 in October. EUR/CHF could now be heading back to 1.20/21 level and would support the franc in general.

On the data front, Australia import price was flat qoq in Q3. German Ifo business climate is the main focus today and is expected to drop slightly to 116.5 in October. UK public sector net borrowing is expected to be at GBP 11.8b in September. Canadian CPI is expected to moderate slightly to 3.0% yoy in September, with core CPI unchanged at 1.9% yoy.