Harbour: Believe me, it will be enough

Key Points

• Following the market friendly EU Summit at the end of June, doubts emerged about details of the rescue package, and the casualty list appeared to lengthen with concerns of the finances of some Spanish regions and Italian cities. 
• With Spanish bond yields holding above 7%, these strains prompted the President of the ECB, Mario Draghi, to emphasise that the central bank was "ready to do whatever it takes", and "believe me, it will be enough". 
• Draghi's comments resulted in a strong rally in risky assets through the end of July, but have left markets with high expectations that his words will be followed up with concrete actions in the weeks and months ahead.
• In New Zealand, NZ yields finished a volatile month broadly unchanged. 
  As expected, the Reserve Bank of New Zealand left its official rate unchanged at 2.5%, leaving the door open for the next move to be a hike or a cut, depending on how the European crisis develops and the pace of momentum in the domestic economy. 
• Once again, the NZ and Australian corporate bond markets have remained surprisingly resilient throughout the volatility in global markets. 

EU summit aftermath

For over a year, we have been longing to write a monthly commentary that is not dominated by developments in Europe, and without any reference to getting closer or further away from the brink (or the location of the brink being miraculously shifted).  However, yet again, European developments were the main driver over July.  And, this looks set to continue while the structural, economic and social backdrop is so challenging, and both policymakers and markets are travelling in uncharted territory. There is scope for surprise from more directions than normal.