The show must go on…
Given the lack of macroeconomic data on Tuesday’s session, yesterday’s rally was driven by speculation over whether the ECB will buy periphery debt. Following Merkel’s speech in Canada, market action seems to be (once again) driven by perceptions and sentiment rather than reality. With investors focusing on Merkel suggesting that the ECB is completely in line with what Germany has said all along, it looks like they completely disregarded the statement that followed, that the results and meetings of the ECB show that the central bank is counting on political action in the form of conditionality as the precondition for a positive development of the single currency. The latter definitely does not sound like unlimited bond buying without preconditions and this philosophy is more than likely to set up the markets for disappointment.