Eurozone secures deal on banking union

Overnight we have received news that EU finance ministers have managed to reach a deal for a Eurozone banking union after many months of negotiation.Eurozone secures deal on banking unionStructurally the ECB will have the power to supervise only the largest banks although this brings Europe a big step closer to the goal of integration.

Today EU finance ministers will meet and discuss aid for Greece and Cyprus, yesterday Greece completed its bond buyback programme and overall the euro has been boosted by recent activity back over 1.30 against the US Dollar.

Also today we have Italy and Spain going to the bond markets and it will be important to assess the uptake of the auctions which if positive could boost the euro further.

Elsewhere the US Federal Reserve had their monthly interest rate meeting yesterday.

As expected they replaced the expiring operation twist programme by outright treasury purchases of $45 billion per month confirming a significant expansion of the Feds balance sheet for 2013.

What was surprising however was the announcement of numerical threshold values for unemployment and inflation in relation to rate hikes.

Basically as long as unemployment remains above 6.5% and one to two year inflation expectations are not above 2.5% with long term expectations anchored, then we can safely say there will be no rate hikes.

This is a form of further easing from the Fed by setting clear guidelines and the markets responded positively before being reined in by fears of the looming fiscal cliff.

The focus for today will continue on Europe and any further feedback from EU finance ministers.

In addition progress on the fiscal cliff negotiations will be eyed especially as it is the elephant in the room for the markets at the moment.

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