The European debt crisis risk has increased and there is an urgent requirement for some policy changes in Europe as the bank faces the potential risk of failure.There has been a global sell off because of the crisis in Europe and US. The risk aversion is very high in the global equities and if the current scenario does not improve we might see more downside in the equities market.
In the recent weeks the European debt crisis and its risk around has increased. The risk of European banking failure and the need of nationalisation can lead to a recession in Europe. This could also breakdown the Euro. The authorities may adopt ways to avert that.
There can be different ways through ECB can be turn around & lower rates, they can increase bond purchases, there can be some movement from the government to stop bank lending like the Federal Deposit Insurance Corporation (US FDIC) did after the leman crisis. So there are different means which can be adopted but none of this has been politically accepted and this has the moved up the risk.
The US economic data does not reveal a recessionary situation. The Federal Reserve Bank will not go for QE3 and more evidence of economic decline is needed for QE3
The big currencies like yen, dollar and euro are most likely to trend lower compared to the emerging markets currencies. In this year we see that Euro will remain weak and yen may strengthen before year closure.
“Bell the bull says: S&P index might touch 1100 levels and recession is unlikely but if the European market holds together.”