We have reached an enthusiastic economic end of the week, when the federal foiled the financial markets while siding idle. European Central Bank, then, increased the severity of frustration when it rejected the stimulus measures to support economic growth. Today, eyes will be focused on tracking U.S. employment job index, and before that, European economies will declare the performance of the service sector during the last month, after the negative amendment on the performance of the industrial sector.
Italy will begin to announce the performance of the service sector, which is expected to shrink to levels of 43.1 from the previous 45.1. France is expected to operate a negative amendment on the final reading of the Purchasing Manager Index Services in July, to reach 49.7 from the previous one on 50.2. While in Germany, it is expected to remain at the levels of contraction of 49.7, and in the Euro zone it is expected to record the final reading of the service sector at consistent contraction levels of 47.6.
Euro zone is witnessing a wave of significant decline in the performance of economic activities, as well as the service and industrial sector. This was amid worsening sovereign debt crisis that has paralyzed the backbone of life, after the European governments adopted austerity policies down to reduce the budget deficit and contain the worsening crisis, which is now threatening the future of the global economic recovery.
The contraction of the performance of economic activities in the euro zone during the last months is in a very deep pace, strengthening the prediction that the Euro zone might fall into second economic stagnation in less than three years. Gross domestic product (GDP) growth in the Euro zone registered almost zero levels, during the first quarter of this year.
In addition, there is a large collapse in the levels of confidence in the financial markets amid worsening sovereign debt crisis and expectations that Spain would request a comprehensive rescue plan. This is after Spain and Cyprus have already asked for a plan to recapitalize the banks, which prompted the return on European bonds specifically of Spanish and Italy to hit historical high levels as the future is not promising to these countries amid rising public debt, significantly to the high borrowing costs incurred by each of them. Add to that the faltering economies of these countries and their presence within a circle of danger.
The euro area is facing a new wave of pessimism
Economies in the euro zone live in very difficult times. Rates of unemployment in the region are at 11.2% during the past month of May, after the policy of strict austerity approved by European governments in order to cope with the surge in public debt, which starts threatening the survival of the unified currency, after five European countries requested plans to rescue their economies.
One must take into account, the possibility of negative amendment on the readings of the service sector in the euro zone, and this will hit the market in a new wave of pessimism, and will push European stocks and the euro to record more losses. The pair euro/U.S dollars is currently trading on 1.2185, recording the highest at 1.2189 and a lowest at 1.2164.
Yesterday, the European Central Bank have installed interest rates at 0.75% in conformity with last month expectations, in which the bank took refuge in cutting interest rates by 25 basis points to support the pace of economic growth in the Euro zone, which is still suffering a lot amid the repercussions of the sovereign debt crisis that has paralyzed the backbone of life in the region.
Mario Draghi, then, frustrated the hopes of investors who were waiting for an announcement of the bank's readiness to buy Spanish and Italian bonds. In fact Mr. Draghi did not deny the consequences of high yield bonds, as he indicated that the increasing borrowing costs on the bonds of some European countries is unacceptable. He also said that he will hinder the functioning of monetary policy, demanding governments to demonstrate a clear plan and put the finishing touches on the combined efforts of the European Central Fund and the financial stability as well as the mechanism of permanent European stability.
Draghi stressed that the ECB will remain ready to work on plans to provide the necessary stimulus to the economy, and work to limit the rise in bond yields, which he called "unacceptable," adding that the decision makers have to address this problem fundamentally.