U.S. Debt has Shrunk to a Six-Year Low

Today’s highlights: ECB President Draghi Speaks (EU, 08:30 GMT) Trade Balance + Manufacturing Production (MoM) (GB, 09:30 GMT) Housing Starts (CAN, 13:15 GMT) NIESR GDP Estimate (GB, 15:00 GMT)
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Oct. 9, 2012 - PRLog -- U.S. debt has shrunk to a six-year low relative to the size of the economy as homeowners, cities and companies cut borrowing, undermining rating companies’ downgrading of the nation’s credit rating. Total indebtedness including that of federal and state governments and consumers has fallen to 3.29 times gross domestic product, the least since 2006, from a peak of 3.59 four years ago, according to data compiled by Bloomberg. Private- sector borrowing is down by $4 trillion to $40.2 trillion.

European finance ministers hailed Greece’s determination to cut the budget and reshape its recession-wracked economy, raising the chances that aid will keep flowing to stop the country from careening out of the euro. European officials paired the encouragement with a demand that Greece commit to a list of 89 policy steps before an Oct. 18-19 leaders’ summit, and left open whether the next 31 billion-euro ($40 billion) loan installment would be paid out in one go or dribbled out in smaller pieces.

The Euro group has launched the European Stability Mechanism (EU's permanent bailout fund replacing the temporary EFSF) on Monday and the head of the lending institution Klaus Regling, appointed for 5 years, has affirmed that it had become fully operational, starting today. Its initial lending capacity will be approximately 200 billion euros. EU finance ministers are also supposed to release a statement regarding the situation in Greece, in the light of last week's negotiations with the Troika inspectors.

The International Monetary Fund cut its global growth forecasts as the euro area’s debt crisis intensifies and warned of even slower expansion unless officials in the U.S. and Europe address threats to their economies. The world economy will grow 3.3 percent this year, the slowest since the 2009 recession, and 3.6 percent next year, the IMF said today.

EUR/USD: The EUR/USD was trading higher at 1.29811 at the time of writing after the Euro group launched the European Stability Mechanism with EUR200 billion in resources to assist troubled countries. However, the gains were limited as Spain has yet to request for an official bailout and the International Monetary Fund cut its growth forecast for the currency bloc and European leaders struggle to contain the region’s debt crisis, weighed on the EUR. Investors should remain prudent and wait for news and economic data to come on market before taking position on the pair. Today, German Chancellor Angela Merkel visits Greece for the first time since the crisis began in 2009 and the Finance ministers from all 27 nations in the European Union will convene in Luxembourg today. The headlines and outcomes of the two meetings will surely affect market sentiments. Economic data likely to contribute in the volatility of the pair are; CPI figures in Greece, trade balance in France, industrial production in Netherland and the ECB Draghi’s speech. While no major economic events are expected in the U.S. Investors should closely monitor all these data to better assess the direction of the EUR/USD. The resistance level is at 1.30277 and the support level is at 1.29359.

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