Cautious Optimism Keeps Markets Steady

NEW YORK ( BBH FX Strategy) -- The European market remains quiet ahead of Wednesday's European Union summit, though risk appetite has held up amid hopes the meeting will produce a comprehensive solution on the eurozone debt crisis.

The dollar consolidated toward Monday's multi-week lows, though EUR-USD movement was restrained around 1.3950 amid heavy option related offers, while sterling is stalling out near 1.60.

Global stocks were for the most part stable with Asian and European shares boosted in part from better-than-expected earnings and hopes of a comprehensive plan at the eurozone summit.

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New Zealand's consumer price index rose in the third quarter driven in part by higher food prices but overall, the report showed that inflation has slowed since peaking in Q2, supporting views that Reserve Bank of New Zealand is likely to remain on hold.

Elsewhere, other news was mixed, with unexpectedly strong German and French consumer confidence data offset by weaker-than-expected revenue from STMicro ( STM), whose shares consequently fell over 7% in Milan. Italian sovereign bonds continue to remain under pressure after Berlusconi failed to convince the cabinet of the need for further reform measures Monday.

The focus remains very much in Europe ahead of Wednesday's summit. There is still room for disappointment if eurozone leaders fail to deliver the solution that many are expecting.

In the day ahead we expect the Bank of Canada to leave rates unchanged, keeping the policy rate at 1.0%. At the same time while we expect rates to hold steady, we expect the BoC to acknowledge the likelihood of an improved growth outlook in the second half of the year off the back of improvement in the U.S. economy and domestic strength in Canada.

In the emerging markets space today the Reserve Bank of India raised rates by 25 basis points to 8.5%. It was the 13th rate move since early 2010, but the bank said it was likely to hold off on further increases as it expects high inflation to ease from December. It revised down its growth forecast for the fiscal year ending in March to 7.6% from 8%, while sticking with its forecast that headline wholesale price index inflation will ease to 7% at the end of the fiscal year. It remains above the 9% level currently.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.