US Durable Goods

Where will it all end? Although the hope is that the official attempts to place a firewall around Ireland will be successful, the evidence from the past two weeks isn't encouraging. Neither, in fairness, is the evidence from the Greek crisis in April and May of this year. Looking back to that time it is worth recalling that the initial announcement of a support package for Greece over the weekend of April 10th/11th only managed to generate the most modest of bounces (from USD1.3580 to just below USD 1.37).

More ominously this proved the starting point for a slide in EUR/USD over the next month and a half that saw it lose a substantial 13%. Over the same period the 10-year Greek/German yield spread rose from 359 bp to an astonishing 10% + in early May before subsequently subsiding in the face of the announcement of the pan European emergency economic stabilisation package. Given this it is worth noting that EUR/USD's initial reaction to the news of an Irish bailout last Monday was all but a replay of what happened in mid-May.

Moreover, the subsequent decline has been rather more abrupt than that seen in the week after the bailout news. Not only that but the 118 bp widening out of the 10-year Irish/German spread seen since the close on Monday does not compare well to the 83 bp widening seen in the Greek/German spread in the week of April 12th. Given how hard Greece was hit in the second half of April in the aftermath of the bailout news, this does not bode well for Ireland through the remainder of this year. Moreover, given the clear knock on impact the Greek crisis had at the time of sentiment towards other "peripheral nations", this suggest that the European authorities will have their work cut out in dampening contagion effects. (simon.derrick@bnymellon.com)

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