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الخميس، 27 سبتمبر 2012
Market Outlook for January 31, 2012
Chancellor Merkel indicated yesterday that there may be a delay in finalisation of a debt deal for Greece by saying “we won’t have a thorough discussion of Greece because the troika is in Greece and we don’t have a result of the talks with the banks.” Fundamental cracks are appearing between Greece, where opposition is growing to German led calls for increased oversight and veto powers for Greek budget decisions, and other European leaders. European leaders want to be able to enforce budget decisions on the Greeks while the nation see such moves as an attack on their sovereignty.
President Nicolas Sarkozy of France said yesterday that “Europe is no longer at the edge of the cliff.” The question has to be ‘what has changed since Europe was at the edge of the cliff?” We fear not much. Certainly markets have been less volatile in response to news developments in the new year. However, even as European leaders work towards rules that are designed to bring about greater fiscal union and budgetary control, member states such as Greece want to play by their own rules. The talk is becoming increasingly tough with the the economic spokesman for Merkel’s Christian Democratic Union saying, “The free lunch is over: no external controls, no money.” European history shows that the continent is least united when nations try to exert their influence on each other. Attempts to “unify” the continent have always led to conflagration.
Yet markets have been once again been gripped by europhoria surrounding EU summits and more announcements surrounding plans to save Europe. European Union leaders meeting in Brussels have agreed on a fiscal treaty that will allow for action against high deficit states and calls for members to introduce legislation to limit budget deficits. Markets have rallied on the news even though these reforms actually do nothing to resolve the current debt crisis. Britain and the Czech Republic have declined to sign the pact. The EUR has rallied above 1.3200 after having traded closer to 1.3100 in early Asian trade.
Equity markets have recovered from a soft start to the week with Asian shares rising on optimism surrounding the latest EU summit. After falling yesterday over Greek resistance to outside influence in its budgetary affairs, rising bond yields and the collapse of Spanair, European bourses are now higher by 1% mid session today. After losing ground yesterday for the third day as European leaders lectured to Greece over the nation’s second rescue package, S&P 500 futures are signalling a rise in trade today.
Commodity prices moved lower yesterday with the CRB index losing more than 1% to 313.91. Today, there has been a broad recovery. WTI Crude oil has gained 1% to trade at $99.85 as tensions in Iran once again dominate trader’s mentality. Precious metals have recovered from yesterday’s falls with gold rising 0.4% to $1,742 while silver has gained 0.7% to $33.75. Soft commodities are broadly stronger while copper is higher by 0.8%.
GOLD continues to consolidate after last weeks boost by the Fed Reserve which now sees gold firmly in the $1,700 territory. The range last night was $1,716 to $1,733. Gold opens the morning just below $1,730. As we had suspected gold held up much better than other commodities overnight as markets jitters surrounding Europe resurfaced. We took up our own advice to buy the metal on the dip to $1,720 overnight. This position now has a stop loss at entry and we will seek to trail this stop higher as the market continues take gold higher. We maintain our bullish bias in the short term and medium term for gold although we are currently reviewing our view on commodities in general. An escalation of the European debt crisis is increasingly likely and this will have a negative impact on commodities in general. However, even last year we saw both the USD and Gold manage to gain and expect that this trend will continue especially in the event of a meltdown in Europe.
The Brussels Summit ended yesterday with no favourable resolution for the Greek saga leaving the market showing its frustration on the EUR/USD driving it down to 1.3075. Apparently German Chancellor Angela Merkel shared the same frustration with the Greek government’s failure to carry out its economic reform. Euro found its base at 1.3135 during early Asian session and the theme today for Asia was sell dollar. However moving towards the London session we may see EUR/USD take on a different theme in the form of volatility. With a whole battery of macro data expected today from the Euro zone, it may be touch and go. We have German retail sales (MoM); French Consumer Spending (MoM); German Unemployment Change; Italian Unemployment Rate; Eurozone Unemployment Rate. In New York expect Chicago PMI and more importantly US Conference Board Consumer Confidence. Euro support is seen at 1.3120 but the psychological level of 1.3000 is possible if all the ‘bad’ stars align. Top side try for 1.3230.
USD/JPY tested ‘BOJ waters’ as we predicted yesterday when it broke the76.55 base today reaching as low as 76.16. At the time of writing USD/JPY is trading at 76.20. We are once again approaching the post war low of 75.35 prompting Finance Minister Azumi to say “we are ready to act decisively against excessive and speculative currency moves if needed”. Factors which sent the yen on a three-day rally include industrial production rising more than forecast in December and unresolved Greek debt restructuring which triggered yen buying as a safe haven. In other news the nation’s jobless rate rose to 4.6% in December from 4.5% the previous month. For Tuesday, we are cautiously bearish on the USD/JPY with top side limited to 77.01 without BOJ intervention or ‘rumoured’ intervention. Downside 75.76 may be first support level. Then it will be exciting to see if we will test the post war low.
AUD/USD finally broke below the 1.0590 support during Monday’s Asia afternoon with the price continuing to fall as the shorter term bulls bailed on positions with the European session providing enough negative signals for the markets to have the bears what looks like in control yet again. Reports that the Greece Bond meetings have stalled and that Greece will also not allow independent fiscal rule helped the decline. Record highs for Portuguese bonds has many fearing Greece round 2. The price bottomed out during the late US morning towards the major support at 1.0525 and as we close the book on Monday the price has recovered to 1.0590 as US equity markets recovered some of its intraday losses. Private Sector Credit and Nab Business Confidence are due during the late morning and with our expectations for weaker numbers the decline back towards 1.0525 is our favoured option. Minor support does come in at 1.0560 but this shouldn’t be to hard to crack.