Markets relatively unchanged despite new EU accord

<p>Early this morning, after more than 10 hours of talks and heated negotiations, Nicolas Sarkozy and Angela Merkel heralded a new inter-governmental accord amongst a […]</p>

Early this morning, after more than 10 hours of talks and heated negotiations, Nicolas Sarkozy and Angela Merkel heralded a new inter-governmental accord amongst a minimum of 23 EU members and potentially two more that leaves the UK ostracised.

However, whilst much of the new accord had already been long expected in the market, given that much of it originates from the Franco-German accord struck on Monday, there remain deep questions about how the new accord could work in practice and whether it will be enough to convince the ECB to scale up its bond purchases.

The accord goes some way to addressing longer term issues such as creating a greater EU fiscal union and budgetary responsibility but fails to answer many of the liquidity concerns investors have in the short term, such as the scale at which the EU can bailout troubled states and the seeming restraint of the ECB to step up its bond purchases.

A look at the markets, where the FTSE 100, DAX and euro are largely unchanged on the day, whilst Italian 10-year bond yields have moved higher to 6.71%, tells a tale that investors have not seen the agreements made as the wide sweeping solution to the debt problems.

With much still to come from the EU Summit, one senses that trading will likely remain extremely choppy today and investors have already shown extreme sensitivity to any rumour or speculation out of Brussels.

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