EU summit the new focus as investors waver over the euro

LAST week saw an extraordinary turnaround in equity markets. The index bounced off 5,100 and shot higher with barely a backward glance. The FTSE 100 tacked on more than eight per cent over the period and on Friday it tested significant resistance at 5,600. This marks the 61.8 per cent Fibonacci retracement of the sell-off that we experienced from May to October.

Ten days ago, most of the major global stock indices were threatening to break below significant support and investor sentiment was profoundly negative. Policymakers across the Eurozone repeatedly failed to address the escalating debt crisis, and the core members of the currency bloc continued to argue over the role of the ECB, the creation of Eurozone bonds and fiscal integration.

Little appears to have changed, yet the FTSE is now 500 points higher. Perhaps the market was oversold. Maybe better-than-expected US data has helped to dispel worries of a global economic slowdown. Or could investors view the coordinated central bank move that cut the cost of dollar funding as a harbinger of greater cooperation in the future? Whatever it was, it boosted investors’ risk appetite.

GFT quotes two-way prices on stock indices around the clock, even when the underlying markets are closed. The FTSE 100 index is called to open down 42 points at 5,510. The German DAX is expected to open down 31 points at 6,050 and the French CAC 40 is forecast to open down 11 points at 3,154.

This week is a busy one on the economic data front. Today we have Services PMI in both the US and UK, and Eurozone Retail Sales. Tomorrow sees a rate decision from the Reserve Bank of Australia. Expectations are for another cut of 25 basis points. We have UK Manufacturing Production on Wednesday, and on Thursday we’ll hear the latest statement from the Bank of England’s MPC. On Friday we’ll see inflation data from China and the UK, and Consumer Sentiment and Inflation Expectations from the US.

But crucially, the week closes with the EU Economic summit. This has become the new focus for investors, and there is a strong expectation that a definitive course of action will be agreed on by Europe’s leaders. Another failure will see investors rush to the exits.

Martin Slaney is director of global product management at GFT