Oct
31st
Market Wrap - 31st October
By Michael Hewson CMC Markets
European markets have been hit by a tsunami of bad news today,
weighed down by scepticism surrounding last week’s European bailout
package as well, after Japan and
China remained cool about the idea of investing in
the EFSF, as well as a deteriorating economic
outlook in Europe.
The OECD downgraded its growth forecasts for the European economy for 2012, slashing them from 2% to 0.3%, while the unemployment figure for Europe rose to a post euro high of 10.2%.
The biggest fallers, as would be expected, are the cyclical sectors with basic resource stocks leading the decliners, led by Vedanta Resources (VED LN) and Xstrata (XTA LN). Financials have also caught a cold despite better than expected Q3 numbers from Barclays (BARC LN), with RBS (RBS LN) and Lloyds Banking (LLOY LN) sliding and Barclays slipping into negative territory after initially opening higher. These numbers were helped by increased focus on driving down costs, but investment banking revenues have declined.
On the plus side more defensive stocks are doing well with pharmaceutical stocks leading the gainers, Glaxo (GSK LN) and Shire (SHP LN) pushing higher. Utility stocks are also higher with United Utilities (UU. LN) and National Grid (NGG LN) up on the day.
U.S. markets followed the lead of Europe’s markets this morning by opening lower after the OECD also downgraded the growth forecasts for the US economy in 2012 from 3.1% to 1.8%.
Financials lead the fallers with JP Morgan and Bank of America leading the fallers with the MF Global story weighing on U.S. investors as the U.S. prime broker filed for Chapter 11 bankruptcy, after being downgraded over its aggressive European sovereign debt exposure.
Its bankruptcy filing revealed that its biggest creditors are JP Morgan and Deutsche Bank.
In economic data the latest Chicago PMI data for October missed expectations, coming in at 58.4, declining from the 60.4 in September. With concerns about the U.S. economy still at the forefront of investor’s mind-set the focus will now be more on tomorrow’s ISM number for signs of recovery in the U.S. manufacturing sector.
The U.S. dollar has been the main gainer today after the Bank of Japan caught the markets on the hop finally intervening to sell the yen aggressively in Asia trading, giving traders a bit of a Halloween nightmare, with the yen the biggest faller on the day.
The resulting U.S. dollar rally has seen the commodity currencies slide back, with the Australian dollar slipping ahead of tomorrow’s decision by the RBA on the outlook for Australian interest rates.
The Euro has also found itself under pressure ahead of this week’s ECB rate decision after disappointing economic data out of Europe, with German retail sales coming in well below expectations at 0.3%, while unemployment rose to a post euro high of 10.2%. The decision by the OECD to slash its growth forecasts for the European economy for 2012 from 2% in May to 0.3%, has also weighed on sentiment. Italian 10 year bonds continue to slide with yields pushing towards 6.2%, despite reports that the ECB is buying Italian bonds.
The Pound continues to recover despite disappointing Hometrack housing data and contracting money supply data, ahead of tomorrow’s Q3 GDP data, where it is expected that the UK economy will show growth of 0.3%.
The rebound in the U.S. dollar has depressed commodity prices across the board this morning, with precious metals, crude oil and copper prices all dropping back sharply.
Copper prices have slipped back despite improving data from China recently, on fears of stagnation in Europe, while construction orders in Japan plunged 9.3% in September.
Gold prices have slipped back towards the $1,700 level after failing to consolidate above its 55 day MA last week.
Crude oil prices have also slid back after failing to push above its long term and 200 day MA, while concerns about global growth and the European debt deal start to weigh on recent upside potential.
The OECD downgraded its growth forecasts for the European economy for 2012, slashing them from 2% to 0.3%, while the unemployment figure for Europe rose to a post euro high of 10.2%.
The biggest fallers, as would be expected, are the cyclical sectors with basic resource stocks leading the decliners, led by Vedanta Resources (VED LN) and Xstrata (XTA LN). Financials have also caught a cold despite better than expected Q3 numbers from Barclays (BARC LN), with RBS (RBS LN) and Lloyds Banking (LLOY LN) sliding and Barclays slipping into negative territory after initially opening higher. These numbers were helped by increased focus on driving down costs, but investment banking revenues have declined.
On the plus side more defensive stocks are doing well with pharmaceutical stocks leading the gainers, Glaxo (GSK LN) and Shire (SHP LN) pushing higher. Utility stocks are also higher with United Utilities (UU. LN) and National Grid (NGG LN) up on the day.
U.S. markets followed the lead of Europe’s markets this morning by opening lower after the OECD also downgraded the growth forecasts for the US economy in 2012 from 3.1% to 1.8%.
Financials lead the fallers with JP Morgan and Bank of America leading the fallers with the MF Global story weighing on U.S. investors as the U.S. prime broker filed for Chapter 11 bankruptcy, after being downgraded over its aggressive European sovereign debt exposure.
Its bankruptcy filing revealed that its biggest creditors are JP Morgan and Deutsche Bank.
In economic data the latest Chicago PMI data for October missed expectations, coming in at 58.4, declining from the 60.4 in September. With concerns about the U.S. economy still at the forefront of investor’s mind-set the focus will now be more on tomorrow’s ISM number for signs of recovery in the U.S. manufacturing sector.
The U.S. dollar has been the main gainer today after the Bank of Japan caught the markets on the hop finally intervening to sell the yen aggressively in Asia trading, giving traders a bit of a Halloween nightmare, with the yen the biggest faller on the day.
The resulting U.S. dollar rally has seen the commodity currencies slide back, with the Australian dollar slipping ahead of tomorrow’s decision by the RBA on the outlook for Australian interest rates.
The Euro has also found itself under pressure ahead of this week’s ECB rate decision after disappointing economic data out of Europe, with German retail sales coming in well below expectations at 0.3%, while unemployment rose to a post euro high of 10.2%. The decision by the OECD to slash its growth forecasts for the European economy for 2012 from 2% in May to 0.3%, has also weighed on sentiment. Italian 10 year bonds continue to slide with yields pushing towards 6.2%, despite reports that the ECB is buying Italian bonds.
The Pound continues to recover despite disappointing Hometrack housing data and contracting money supply data, ahead of tomorrow’s Q3 GDP data, where it is expected that the UK economy will show growth of 0.3%.
The rebound in the U.S. dollar has depressed commodity prices across the board this morning, with precious metals, crude oil and copper prices all dropping back sharply.
Copper prices have slipped back despite improving data from China recently, on fears of stagnation in Europe, while construction orders in Japan plunged 9.3% in September.
Gold prices have slipped back towards the $1,700 level after failing to consolidate above its 55 day MA last week.
Crude oil prices have also slid back after failing to push above its long term and 200 day MA, while concerns about global growth and the European debt deal start to weigh on recent upside potential.
Oct
31st
Gold Plunges after Yen Move, Comex Traders "Cautious", "Useless" CDS "Would Mean Much Higher Sovereign Debt Exposure"
By Ben Traynor (Bullion Vault)
U.S.DOLLAR gold bullion prices on
the spot market dropped sharply to $1708 an ounce Monday morning –
a 2.2% fall from Friday's close – while stocks and commodities also
fell and the U.S. Dollar gained following Japan's
intervention aimed at weakening the Yen.
Gold bullion prices then rallied as the morning went on, hitting $1725 per ounce by lunchtime in London.
"The huge spike in the Dollar is pressuring gold prices," says Ong Yi Ling, analyst at Phillip Futures in Singapore.
"But so long as gold stays above $1,700, the sentiment should remain pretty bullish."
Silver bullion fell to $34.18 per ounce – 3.3% down on Friday's close – remaining around that level for the rest of the morning.
On the currency markets, the U.S. Dollar gained 5% against the Yen immediately following Tokyo's action. By Monday lunchtime, however, the Dollar had slipped back by 2.1%.
In Europe meantime, "bold decisions are needed from the G20 leaders meeting in Cannes this week to get the global economy back on track," says Angel Gurria, secretary general of the Organisation for Economic Co-operation and Development.
"In most countries we see some very worrying political trends," notes Laurence Parisot of French business lobby Medef.
"Inward-looking, beggar-my-neighbor policies benefit no one," says British prime minister David Cameron, writing in the Financial Times.
"We have to push for a more balanced world economy, where countries like the UK do better at saving and investing and restoring their competitiveness."
M4 money supply in the UK fell 1.7% in September, figures released by the bank of England on Monday show. Lending to the real economy, according to the Bank's measure, fell by £6.4 billion, compared to an average monthly decrease of £3.9 billion over the previous six months.
Lending to individuals, by contrast, rose by £1 billion last month, with consumer credit growing £0.6 billion – to show an increased annual growth rate of 2.5%.
The Bank announced this morning that it will no longer release these data monthly, and will instead move to quarterly publication.
On the bond markets meantime, yields on Italian 10-Year Treasury bonds hit 6.15% this morning – briefly showing a spread of over four percentage points compared to German bunds.
Italy had to offer yields of over 6% when it auctioned €7.9 billion of longer-dated bonds on Friday – the highest rate it has paid as a Eurozone member.
Elsewhere in Europe, plans to avoid triggering credit default swaps in the event of a Greek default have raised questions over whether banks using CDS – which act as a form of bond insurance – to hedge their sovereign exposure are now less protected than they thought, news agency Reuters reports.
CDS pay out if there is a "credit event", usually taken to include a default. However, it remains unclear whether a deal on Greek debt – such as the 50% haircut for private creditors agreed last week – would be viewed as voluntary, and if so whether it would then constitute a credit event.
"People talk about Greek CDS triggering being destabilizing, when it's really the opposite," Reuters quotes one global credit trading head at a major European bank.
"If there is a 50% haircut and it's voluntary, then my worry is all my sovereign CDS protection in Europe is useless, and my net exposure is much higher."
British bank Barclays (BARC LN) cut its exposure to Eurozone sovereign debt by 31% during the third quarter of this year, according to results published Monday.
Over in New York, the net long position of bullish minus bearish gold futures and options contracts held by noncommercial – so-called 'speculative' – traders on the Comex exchange jumped 5.2% in the week ended 25 October.
"Given that this week's improvement merely erases the deterioration of the previous week, the speculative market still appears to be cautious about gold's short-term prospects," warns Marc Ground, commodities strategist at Standard Bank.
Over the same period, the gross tonnage of gold bullion held to back shares in the SPDR Gold Trust (GLD) – the world's largest gold ETF – rose by 16 tonnes, though the GLD has seen a small outflow of less than one tonne since last Tuesday.
In China meantime, JPMorgan Chase Bank (China) has received approval to become a member of the Shanghai Gold Exchange.
Writing in the London Bullion Market Association's 'Alchemist' newsletter in 2009, Tim Wilson, JPMorgan's managing director and head of Asia marketing of commodities, asked whether an Asia initiative should be "an agenda item on every LBMA committee".
"The number of debates and articles about transforming the LBMA into the International BMA are too numerous to recount, but discussion has rarely been translated into action," he said.
"We as Market Makers and Members should be embracing the opportunity to cement our position as the pre-eminent gold trading platform, to expand and promote the benefits associated with the highly accredited, reliable and international LBMA Good Delivery List."
Ben Traynor
BullionVault
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Gold bullion prices then rallied as the morning went on, hitting $1725 per ounce by lunchtime in London.
"The huge spike in the Dollar is pressuring gold prices," says Ong Yi Ling, analyst at Phillip Futures in Singapore.
"But so long as gold stays above $1,700, the sentiment should remain pretty bullish."
Silver bullion fell to $34.18 per ounce – 3.3% down on Friday's close – remaining around that level for the rest of the morning.
On the currency markets, the U.S. Dollar gained 5% against the Yen immediately following Tokyo's action. By Monday lunchtime, however, the Dollar had slipped back by 2.1%.
In Europe meantime, "bold decisions are needed from the G20 leaders meeting in Cannes this week to get the global economy back on track," says Angel Gurria, secretary general of the Organisation for Economic Co-operation and Development.
"In most countries we see some very worrying political trends," notes Laurence Parisot of French business lobby Medef.
"Inward-looking, beggar-my-neighbor policies benefit no one," says British prime minister David Cameron, writing in the Financial Times.
"We have to push for a more balanced world economy, where countries like the UK do better at saving and investing and restoring their competitiveness."
M4 money supply in the UK fell 1.7% in September, figures released by the bank of England on Monday show. Lending to the real economy, according to the Bank's measure, fell by £6.4 billion, compared to an average monthly decrease of £3.9 billion over the previous six months.
Lending to individuals, by contrast, rose by £1 billion last month, with consumer credit growing £0.6 billion – to show an increased annual growth rate of 2.5%.
The Bank announced this morning that it will no longer release these data monthly, and will instead move to quarterly publication.
On the bond markets meantime, yields on Italian 10-Year Treasury bonds hit 6.15% this morning – briefly showing a spread of over four percentage points compared to German bunds.
Italy had to offer yields of over 6% when it auctioned €7.9 billion of longer-dated bonds on Friday – the highest rate it has paid as a Eurozone member.
Elsewhere in Europe, plans to avoid triggering credit default swaps in the event of a Greek default have raised questions over whether banks using CDS – which act as a form of bond insurance – to hedge their sovereign exposure are now less protected than they thought, news agency Reuters reports.
CDS pay out if there is a "credit event", usually taken to include a default. However, it remains unclear whether a deal on Greek debt – such as the 50% haircut for private creditors agreed last week – would be viewed as voluntary, and if so whether it would then constitute a credit event.
"People talk about Greek CDS triggering being destabilizing, when it's really the opposite," Reuters quotes one global credit trading head at a major European bank.
"If there is a 50% haircut and it's voluntary, then my worry is all my sovereign CDS protection in Europe is useless, and my net exposure is much higher."
British bank Barclays (BARC LN) cut its exposure to Eurozone sovereign debt by 31% during the third quarter of this year, according to results published Monday.
Over in New York, the net long position of bullish minus bearish gold futures and options contracts held by noncommercial – so-called 'speculative' – traders on the Comex exchange jumped 5.2% in the week ended 25 October.
"Given that this week's improvement merely erases the deterioration of the previous week, the speculative market still appears to be cautious about gold's short-term prospects," warns Marc Ground, commodities strategist at Standard Bank.
Over the same period, the gross tonnage of gold bullion held to back shares in the SPDR Gold Trust (GLD) – the world's largest gold ETF – rose by 16 tonnes, though the GLD has seen a small outflow of less than one tonne since last Tuesday.
In China meantime, JPMorgan Chase Bank (China) has received approval to become a member of the Shanghai Gold Exchange.
Writing in the London Bullion Market Association's 'Alchemist' newsletter in 2009, Tim Wilson, JPMorgan's managing director and head of Asia marketing of commodities, asked whether an Asia initiative should be "an agenda item on every LBMA committee".
"The number of debates and articles about transforming the LBMA into the International BMA are too numerous to recount, but discussion has rarely been translated into action," he said.
"We as Market Makers and Members should be embracing the opportunity to cement our position as the pre-eminent gold trading platform, to expand and promote the benefits associated with the highly accredited, reliable and international LBMA Good Delivery List."
Ben Traynor
BullionVault
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Oct
31st
Pre Market and FX Commentary - 31st October
By Michael Hewson CMC Markets
Japanese authorities’ patience finally snapped overnight giving
traders a Halloween horror show, as the long awaited unilateral
intervention the markets had been concerned about finally arrived
pushing the yen lower. This was only after a new yen post war high
at 75.35 in Asia on Sunday night. Whether it lasts remains to be
seen but a move beyond 80 could well trigger a further U.S.
dollar rally.
The overstated market reaction to last week’s European bailout package will be tested this week with scepticism already rising about the durability of the measures announced.
The notion that China could somehow become some form of saviour, or lender of last resort to the European project looks as if it could well have been wishful thinking on European leader’s part, especially given the bond market reaction on Friday, as yields on Italian bonds soared to fresh post euro highs at 6.06% on a 2022 BTP auction. The reaction of Chinese news agency Xinhua stated that “China can neither take up the role as a saviour to the Europeans, nor provide a 'cure' for the European malaise," it stated. "Obviously, it is up to European countries themselves to tackle their financial problems."
There was some speculation that this week’s G20 meeting would have been the forum for just such a discussion; however these hopes have been downplayed, not least by the Chinese themselves.
Italy remains the key pressure point in the European sovereign debt saga and despite the ECB continuing to buy Italian bonds; it appears that they are only doing so grudgingly.
While currency and equity markets surged on last weeks deal it would appear that bond markets have been more sanguine and it would appear that Italy’s feet continue to burn while their Prime Minister becomes more of a liability with each passing day.
Today’s economic data in Europe could well give further clues as to the likelihood of the ECB cutting rates at this weeks monthly rate meeting and new President Mario Draghi’s first.
Eurozone and Italian CPI figures for October is due with Eurozone CPI expected to slip back from 3% to 2.9% year on year, while Italian monthly CPI is expected to come in at 0.6% from September’s VAT induced jump to 2%. Annualised CPI is expected to slip back to 3.5% while the unemployment rate is expected to remain constant at 10%. German retail sales for September are expected to slide further on an annualised basis from August’s 2.2% rise, slipping back to post a rise of 1.6%.
In the UK the latest mortgage approvals data for September is expected to show borrowing of 50.6k, down from August’s 52.4k, reinforcing this mornings slide in the Hometrack housing survey for October as house prices slid 2.8%. Consumer credit numbers are also expected to remain weak as consumers remain reluctant to take on new borrowing against a weak fiscal backdrop and slowing economy.
In the U.S. the latest Chicago Purchasing Manager’s data for October is expected to follow on from Friday’s better than expected Michigan confidence numbers with a reading of 59.4, slightly down from the previous 60 as the U.S. economy, while still moribund, shows tepid signs of a possible turnaround.
EURUSD – last week’s move higher through number of key long term resistance levels in one fell swoop has shifted the short term outlook here. To refocus back towards the 1.3000 level we need to break back below the 200 day and 200 week moving averages. Only a move above 1.4350 which is trend line resistance from the highs at 1.4940 would shift the focus towards further gains for the single currency. The key support remains the 200 week MA at 1.3945, a move back below targeting last weeks lows at 1.3800. The euro needs to break back below 1.3820 to retarget 1.3650, which is the main obstacle to a test towards 1.3520. The outlook remains for a longer term move towards 1.3050, which is the 61.8% retracement level of the 1.1880/1.4940 up move.
GBPUSD – the failure to make progress beyond the 200 day MA at 1.6140, peaking at 1.6150 last week, keeps the focus on the downside. Lagging behind the euro the downside potential in cable remains intact while below 1.6140. The pullback in Asia this morning needs to hold the 1.5850 area which had acted as quite a key resistance level during the middle of this month to prevent further cable losses towards 1.5630.
EURGBP – last week’s late euro surge saw the single currency push beyond the 0.8790/00 area but still within the broader range seen since mid July where there is a solid range of highs at 0.8880/90. While below these highs the broader range remains intact. Below 0.8790 retargets a move towards 0.8730. Only below the 0.8650 area has the potential to see a retest of this month’s lows at 0.8530.
USDJPY – another week and another post WW2 low at 75.35 this morning finally snapped the patience of the Bank of Japan as the Japanese authorities finally intervened to drive the yen lower, driving it above 76.40 and sending it towards its 200 day MA at 79.80/90 and also trend line resistance from the 2007 highs at 124.15 at the same level Only a move and close above this key level could well signal further U.S. dollar gains, otherwise we could see a drift back lower.
The overstated market reaction to last week’s European bailout package will be tested this week with scepticism already rising about the durability of the measures announced.
The notion that China could somehow become some form of saviour, or lender of last resort to the European project looks as if it could well have been wishful thinking on European leader’s part, especially given the bond market reaction on Friday, as yields on Italian bonds soared to fresh post euro highs at 6.06% on a 2022 BTP auction. The reaction of Chinese news agency Xinhua stated that “China can neither take up the role as a saviour to the Europeans, nor provide a 'cure' for the European malaise," it stated. "Obviously, it is up to European countries themselves to tackle their financial problems."
There was some speculation that this week’s G20 meeting would have been the forum for just such a discussion; however these hopes have been downplayed, not least by the Chinese themselves.
Italy remains the key pressure point in the European sovereign debt saga and despite the ECB continuing to buy Italian bonds; it appears that they are only doing so grudgingly.
While currency and equity markets surged on last weeks deal it would appear that bond markets have been more sanguine and it would appear that Italy’s feet continue to burn while their Prime Minister becomes more of a liability with each passing day.
Today’s economic data in Europe could well give further clues as to the likelihood of the ECB cutting rates at this weeks monthly rate meeting and new President Mario Draghi’s first.
Eurozone and Italian CPI figures for October is due with Eurozone CPI expected to slip back from 3% to 2.9% year on year, while Italian monthly CPI is expected to come in at 0.6% from September’s VAT induced jump to 2%. Annualised CPI is expected to slip back to 3.5% while the unemployment rate is expected to remain constant at 10%. German retail sales for September are expected to slide further on an annualised basis from August’s 2.2% rise, slipping back to post a rise of 1.6%.
In the UK the latest mortgage approvals data for September is expected to show borrowing of 50.6k, down from August’s 52.4k, reinforcing this mornings slide in the Hometrack housing survey for October as house prices slid 2.8%. Consumer credit numbers are also expected to remain weak as consumers remain reluctant to take on new borrowing against a weak fiscal backdrop and slowing economy.
In the U.S. the latest Chicago Purchasing Manager’s data for October is expected to follow on from Friday’s better than expected Michigan confidence numbers with a reading of 59.4, slightly down from the previous 60 as the U.S. economy, while still moribund, shows tepid signs of a possible turnaround.
EURUSD – last week’s move higher through number of key long term resistance levels in one fell swoop has shifted the short term outlook here. To refocus back towards the 1.3000 level we need to break back below the 200 day and 200 week moving averages. Only a move above 1.4350 which is trend line resistance from the highs at 1.4940 would shift the focus towards further gains for the single currency. The key support remains the 200 week MA at 1.3945, a move back below targeting last weeks lows at 1.3800. The euro needs to break back below 1.3820 to retarget 1.3650, which is the main obstacle to a test towards 1.3520. The outlook remains for a longer term move towards 1.3050, which is the 61.8% retracement level of the 1.1880/1.4940 up move.
GBPUSD – the failure to make progress beyond the 200 day MA at 1.6140, peaking at 1.6150 last week, keeps the focus on the downside. Lagging behind the euro the downside potential in cable remains intact while below 1.6140. The pullback in Asia this morning needs to hold the 1.5850 area which had acted as quite a key resistance level during the middle of this month to prevent further cable losses towards 1.5630.
EURGBP – last week’s late euro surge saw the single currency push beyond the 0.8790/00 area but still within the broader range seen since mid July where there is a solid range of highs at 0.8880/90. While below these highs the broader range remains intact. Below 0.8790 retargets a move towards 0.8730. Only below the 0.8650 area has the potential to see a retest of this month’s lows at 0.8530.
USDJPY – another week and another post WW2 low at 75.35 this morning finally snapped the patience of the Bank of Japan as the Japanese authorities finally intervened to drive the yen lower, driving it above 76.40 and sending it towards its 200 day MA at 79.80/90 and also trend line resistance from the 2007 highs at 124.15 at the same level Only a move and close above this key level could well signal further U.S. dollar gains, otherwise we could see a drift back lower.
Oct
28th
Market Wrap - 28th October
By Michael Hewson CMC Markets
European markets have spent the last day of a very positive week
with a softer tone, consolidating the gains seen over the past few
days, as investors mull their next move as the immediate danger of
a banking contagion appears to have diminished in the short
term.
Reminders of risk aren’t too far away; after Italy sold 10 year bonds at post euro record highs above 6%, reminding investors that the state of Italy’s finances remain a key concern.
Biggest fallers are in the financial sector with Man Group (EMG LN), Lloyds (LLOY LN), RBS (RBS LN) and Barclays (BARC LN) giving up some of yesterday’s strong gains, probably prompted by Italy’s disappointing bond auction results. Banks reporting season also starts next week with Barclays due to give an update to the market on Tuesday, followed by RBS later in the week and with Santander (BNC LN) reporting lower profits this week on the back of PPI mis-selling while U.S. and European investment banking incomes have declined in the third quarter, investors appear to be booking profits early.
The oil and gas sector has also given up some ground with Royal Dutch Shell (RDSA LN) and BP (BP. LN) both slipping back from their highs of the week. Outperformers include Indian oil group Essar Energy (ESSR LN) is at the top of the index closely followed by HSBC (HSBA LN) in contrast to the rest of the financial sector.
U.S. markets opened lower this morning after the sugar rush of yesterday’s strong rally starts to fizzle out and investors’ book profits ahead of the weekend. In earnings news oil giant Chevron posted much higher than expected earnings for Q3 coming in at $3.92c a share following in its sector peers footsteps earlier this week. Merck also beat expectations of $0.91c share, coming in at $0.94c a share.
In economic news the latest PCE inflation numbers from the U.S. showed that annualised core inflation remains around the 1.6% level for September, while a rebound in consumer spending in September showed that yesterday's rise in U.S. GDP was largely consumer driven. University of Michigan sentiment for October came in much better than expected at 60.9 from 57.5 in September.
In a reversal of yesterday, the biggest fallers today are the commodity currencies of the New Zealand, Australian and Canadian dollar after yesterday’s strong moves up.
The Euro has also slipped back on the back of record Spanish unemployment numbers, while French economic data showed that consumer spending dropped sharply in October. Italy’s latest bond auctions also saw post euro record yields, and reminded investors, if any reminder were needed, that Italy remains a key fault line in the European debt crisis.
Ratings agency Fitch also added to the more reticent mood by announcing that the 50% debt haircut on Greek debt should be considered a default or credit event.
The Pound has struggled to rebound after yesterday’s losses, as consumer confidence figures fell to their lowest levels since February 2009.
Gold prices continue to remain broadly resilient with the yellow metal set to close the week $100 higher, while silver prices are over $3 higher as investors continue to hedge risk with safe haven gold exposure.
Copper prices have dropped sharply back from this morning’s $3.75 highs as equities slip back from their 2 month highs.
Crude oil prices have pulled back from their intraweek highs as equity markets have pared their weekly gains.
Reminders of risk aren’t too far away; after Italy sold 10 year bonds at post euro record highs above 6%, reminding investors that the state of Italy’s finances remain a key concern.
Biggest fallers are in the financial sector with Man Group (EMG LN), Lloyds (LLOY LN), RBS (RBS LN) and Barclays (BARC LN) giving up some of yesterday’s strong gains, probably prompted by Italy’s disappointing bond auction results. Banks reporting season also starts next week with Barclays due to give an update to the market on Tuesday, followed by RBS later in the week and with Santander (BNC LN) reporting lower profits this week on the back of PPI mis-selling while U.S. and European investment banking incomes have declined in the third quarter, investors appear to be booking profits early.
The oil and gas sector has also given up some ground with Royal Dutch Shell (RDSA LN) and BP (BP. LN) both slipping back from their highs of the week. Outperformers include Indian oil group Essar Energy (ESSR LN) is at the top of the index closely followed by HSBC (HSBA LN) in contrast to the rest of the financial sector.
U.S. markets opened lower this morning after the sugar rush of yesterday’s strong rally starts to fizzle out and investors’ book profits ahead of the weekend. In earnings news oil giant Chevron posted much higher than expected earnings for Q3 coming in at $3.92c a share following in its sector peers footsteps earlier this week. Merck also beat expectations of $0.91c share, coming in at $0.94c a share.
In economic news the latest PCE inflation numbers from the U.S. showed that annualised core inflation remains around the 1.6% level for September, while a rebound in consumer spending in September showed that yesterday's rise in U.S. GDP was largely consumer driven. University of Michigan sentiment for October came in much better than expected at 60.9 from 57.5 in September.
In a reversal of yesterday, the biggest fallers today are the commodity currencies of the New Zealand, Australian and Canadian dollar after yesterday’s strong moves up.
The Euro has also slipped back on the back of record Spanish unemployment numbers, while French economic data showed that consumer spending dropped sharply in October. Italy’s latest bond auctions also saw post euro record yields, and reminded investors, if any reminder were needed, that Italy remains a key fault line in the European debt crisis.
Ratings agency Fitch also added to the more reticent mood by announcing that the 50% debt haircut on Greek debt should be considered a default or credit event.
The Pound has struggled to rebound after yesterday’s losses, as consumer confidence figures fell to their lowest levels since February 2009.
Gold prices continue to remain broadly resilient with the yellow metal set to close the week $100 higher, while silver prices are over $3 higher as investors continue to hedge risk with safe haven gold exposure.
Copper prices have dropped sharply back from this morning’s $3.75 highs as equities slip back from their 2 month highs.
Crude oil prices have pulled back from their intraweek highs as equity markets have pared their weekly gains.
Oct
28th
"Returns to Form" for Gold, China Considers "Strategic Opportunities" of Bailing Out Europe, EFSF "Lacks Funds to Support Both B
By Ben Traynor (Bullion Vault)SPOT MARKET gold prices touched a one-month high of $1752 an ounce during Asian trading on Friday – a 7.9% gain from the start of October – before falling back by lunchtime in London.
Stock and commodity markets edged lower and US Treasury bonds gained, as investors began to digest the implications of this week's Euro Summit deal.
As we headed towards the weekend, gold prices were hovering around $1737 per ounce – 5.9% higher than last week's close, and set for their biggest weekly gain since August.
"The outlook into next week should remain cautious," ones one gold dealer in London.
"Gold's return to form [however], after a period of indifferent performance, will have won it back some supporters, especially since this week's initial rally ran contrary to equities.
Silver prices were up over 12% for the week by Friday lunchtime - at around $35.20 per ounce.
Based on Friday-to-Friday London Fix prices, silver looked set for its biggest weekly gain since May 2009.
European Financial Stability Facility chief executive Klaus Regling held meetings with officials from China's central bank and finance ministry Friday, following yesterday's announcement by European leaders that they will leverage the resources of the EFSF – the Eurozone's bailout fund – possibly by setting up a special purpose vehicle to attract investment.
China has been "a good, loyal buyer" of EFSF-issued bonds said Regling, adding that around 40% of EFSF bonds issued to date are held by Asian investors – though he declined to reveal how many were specifically in Chinese hands.
"I am optimistic that we will have also a longer-term relationship because we will continue to provide safe, attractive investment opportunities."
The EFSF is rated triple-A by all three major ratings agencies.
Regling's visit follows Thursday's telephone conference between China's president Hu Jintao and French president Nicolas Sarkozy.
"Our independence will in no way be put into question by this," insisted Sarkozy yesterday.
"It is in China's long-term and intrinsic interest to help Europe," adds Li Daokui, academic member of China's central bank monetary policy committee.
"They are our biggest trading partner but the chief concern of the Chinese government is how to explain this decision to our own people...the last thing China wants is to throw away the country's wealth and be seen as just a source of dumb money."
"As a Chinese saying goes, a crisis always contains opportunities in itself," notes an editorial on the website of China's state-run news agency Xinhua, adding that "strategic vision is needed".
"The issue as to recognition of China's full market economy status has long been a stumbling block to the development of China-EU relations...European leaders, especially those of great insight, have begun to reflect on the problem, but any delays in seeking a solution, along with persistent practice of protectionism in the name of fair trade, is a clear sign of shortsightedness."
Back in Europe, there are fears that the continent's banks could be facing a credit market freeze, according to news agency Bloomberg.
Over $1 trillion of debt must be refinanced next year, the newswire reports, but banks are struggling to roll that over by selling new bonds, with more and more relying on short-term emergency funding from the European Central Bank.
"If banks can't fund themselves, they'll struggle to exist," says David Moss, director at F&C Asset Management.
In addition to debt refinancing, some banks say they will need to raise billions if they are meet the 9% capital ratio requirement announced at this week's Euro Summit.
"There is talk about Europe-wide bank guarantees [for bank-issued bonds], but it is not clear yet how that would work," adds Alberto Gallo, head of European credit strategy at Royal Bank of Scotland.
"What is clear is that the EFSF doesn't have enough fire-power to support this as well as standing behind the sovereigns and any bank recapitalizations."
A key indicator of banks' wariness to lend this week hit its worst level since July 2009 according to Bloomberg data.
The spread between 3-month Dollar Libor (the rate at which banks lend Dollars to other banks for three months) and the overnight indexed swap rate (a lower fixed rate as interest rate swaps are considered less risky than cash lending) hit 34.5 basis points (0.345 percentage points) on Wednesday.
The Libor-OIS spread is viewed as a measure of money market stress, tending to rise when banks perceive the risk of lending to each other is greater. Libor-OIS spreads have risen sharply since the start of August – when they were around 12 bps – though they remain way below levels hit just before the Lehman shock of September 2008, when they spiked to over 350 bps.
Over in the US, Goldman Sachs considers five potential monetary policy developments in a new research note:
1. New conditions added to policy rules, such as keeping rates low until unemployment falls below 7% (or so-called core inflation rises to 3%)
2. Raising the inflation target
3. Targeting a price level, rather than a rate-of-change of prices
4. Targeting nominal GDP
5. Targeting the exchange rate
"We think nominal GDP targeting probably provides the best way of communicating a credible intention to deliver a more aggressive easing without taking risks on long-term inflation," says the report.
Gold prices "should slowly drift higher" in the near-term, reckons Jeremy Friesen, commodities strategist at Societe Generale.
"The market will focus on how central banks across the board are going to shift from neutral or tightening to accommodative or aggressively accommodative policy."
Ben Traynor
BullionVault
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Oct
28th
Pre Market and FX Commentary - 28th October
By Michael Hewson CMC Markets
What a difference 24 hours can make, yet here we are 20% above our
August lows as risk appetite returned to equity markets with a
vengeance, prompting the question what was all the fuss about the
past few months. So much for the idea that October is historically
a bad month for stocks.
The key question now is whether yesterday’s moves can be sustained and in the short term they could well be, given the damage to short positions caused by yesterday’s move.
In the medium term however the jury remains out, with details of how the various planks of the deal link together, with EFSF chief Regling due to meet the Chinese and other Far East investors today with begging bowl in hand.
The U.S. dollar was pulverised yesterday across the board, down against everything, however it remains above a key trend line support at 73.95 from its May lows against a basket of currencies.
Despite yesterday’s relief rally the rise of the Euro presents Europe with a problem they cannot ignore, and that is the fact that for growth to return, Europe needs a weaker currency, not a stronger one so this move higher makes life much more difficult for the southern economies.
This could be where the ECB comes in next week, at Mario Draghi’s first monthly meeting, however yesterday’s higher than expected German CPI numbers make a possible rate cut some what more problematic for him at his first meeting as President.
Even so the ECB will have to be a lot more flexible on monetary policy in the coming months starting next week, otherwise the steps agreed this week will be for nought, especially if France as is feared loses its triple “A” rating in the coming months as growth continues to fizzle out, and the government has to inject money into its banks.
As it is this agreement will rely on continued delivery of fiscal goals which individual European countries have been historically bad at and it is less than certain that Greece or Italy for that matter will be able to grow at the required rate, while at the same time implementing spending cuts and further austerity.
The first test of the effect of this week’s agreement on bond yields will be this morning when Italy goes to the bond markets for €8.5bn worth of 2014, 2017, 2019 and 2022 paper.
The Italian 10 year bond yield declined yesterday but only to around 5.8%, still unsustainable.
Yesterday’s strong rebound in U.S. GDP growth in Q3, with personal consumption showing strongly should silence those calling for further QE in the coming weeks, though the likelihood of it coming this year was never that high in any case, given the political backdrop in Europe. Today’s release of PCE figures for September which is the Fed’s preferred inflation measure, would have made further loosening problematic in any case, with core prices expected to rise 1.7% year on year from 1.6% in August. Personal income and personal spending is also expected to have bounced back strongly in September, as a result of back to school expenditure.
EURUSD – yesterday’s incredible move in the Euro blew away a number of key long term resistance levels in one fell swoop. The 61.8% Fibonacci retracement level of the 1.4550/1.3150 down move at 1.4014, as well as the 200 day and 200 week moving averages in one large hit requires a reassessment of the bearish scenario held for the past couple of months. It now looks as if we could well get a test towards 1.4350 which is trend line resistance from the highs at 1.4940, before we get a sustained pullback. For the change of momentum to be sustained we would need to see the euro hold above the 1.4000 level where we had the breakout yesterday.
GBPUSD – the Pound fulfilled its potential to hit 1.6105 the 61.8% Fibonacci retracement of the down move from 1.6620 to 1.5270 and rebounded off its 200 day MA at 1.6140 before retreating. Lagging behind the euro the downside potential in cable remains intact while below 1.6140. Above 1.6140 targets a move towards 1.6300. Any pullbacks need to hold above 1.6020 to prevent a deeper correction back towards the 1.5850 which had acted as quite a key resistance level during the middle of last week. Back below 1.5850 retargets the 1.5670/80 area as well as last weeks low at 1.5630.
EURGBP – yesterday’s euro surge saw the single currency push beyond the 0.8790/00 area but still within the broader range seen since mid July where there is a solid range of highs at 0.8880/90. While below these highs the broader range remains intact. Below 0.8790 retargets a move towards 0.8730. Only below the 0.8650 area has the potential to see a retest of this month’s lows at 0.8530.
USDJPY – another day and another post WW2 low at 75.65 keeps the focus on the downside here, but caution continues to remain the watchword, especially with the Japanese authorities continuing to make rumbling noises on the strength of the yen. Further measures to weaken the yen cannot be ruled out. To stabilise in the short term the US dollar needs to get back above 76.40 to retarget 77.00
The key question now is whether yesterday’s moves can be sustained and in the short term they could well be, given the damage to short positions caused by yesterday’s move.
In the medium term however the jury remains out, with details of how the various planks of the deal link together, with EFSF chief Regling due to meet the Chinese and other Far East investors today with begging bowl in hand.
The U.S. dollar was pulverised yesterday across the board, down against everything, however it remains above a key trend line support at 73.95 from its May lows against a basket of currencies.
Despite yesterday’s relief rally the rise of the Euro presents Europe with a problem they cannot ignore, and that is the fact that for growth to return, Europe needs a weaker currency, not a stronger one so this move higher makes life much more difficult for the southern economies.
This could be where the ECB comes in next week, at Mario Draghi’s first monthly meeting, however yesterday’s higher than expected German CPI numbers make a possible rate cut some what more problematic for him at his first meeting as President.
Even so the ECB will have to be a lot more flexible on monetary policy in the coming months starting next week, otherwise the steps agreed this week will be for nought, especially if France as is feared loses its triple “A” rating in the coming months as growth continues to fizzle out, and the government has to inject money into its banks.
As it is this agreement will rely on continued delivery of fiscal goals which individual European countries have been historically bad at and it is less than certain that Greece or Italy for that matter will be able to grow at the required rate, while at the same time implementing spending cuts and further austerity.
The first test of the effect of this week’s agreement on bond yields will be this morning when Italy goes to the bond markets for €8.5bn worth of 2014, 2017, 2019 and 2022 paper.
The Italian 10 year bond yield declined yesterday but only to around 5.8%, still unsustainable.
Yesterday’s strong rebound in U.S. GDP growth in Q3, with personal consumption showing strongly should silence those calling for further QE in the coming weeks, though the likelihood of it coming this year was never that high in any case, given the political backdrop in Europe. Today’s release of PCE figures for September which is the Fed’s preferred inflation measure, would have made further loosening problematic in any case, with core prices expected to rise 1.7% year on year from 1.6% in August. Personal income and personal spending is also expected to have bounced back strongly in September, as a result of back to school expenditure.
EURUSD – yesterday’s incredible move in the Euro blew away a number of key long term resistance levels in one fell swoop. The 61.8% Fibonacci retracement level of the 1.4550/1.3150 down move at 1.4014, as well as the 200 day and 200 week moving averages in one large hit requires a reassessment of the bearish scenario held for the past couple of months. It now looks as if we could well get a test towards 1.4350 which is trend line resistance from the highs at 1.4940, before we get a sustained pullback. For the change of momentum to be sustained we would need to see the euro hold above the 1.4000 level where we had the breakout yesterday.
GBPUSD – the Pound fulfilled its potential to hit 1.6105 the 61.8% Fibonacci retracement of the down move from 1.6620 to 1.5270 and rebounded off its 200 day MA at 1.6140 before retreating. Lagging behind the euro the downside potential in cable remains intact while below 1.6140. Above 1.6140 targets a move towards 1.6300. Any pullbacks need to hold above 1.6020 to prevent a deeper correction back towards the 1.5850 which had acted as quite a key resistance level during the middle of last week. Back below 1.5850 retargets the 1.5670/80 area as well as last weeks low at 1.5630.
EURGBP – yesterday’s euro surge saw the single currency push beyond the 0.8790/00 area but still within the broader range seen since mid July where there is a solid range of highs at 0.8880/90. While below these highs the broader range remains intact. Below 0.8790 retargets a move towards 0.8730. Only below the 0.8650 area has the potential to see a retest of this month’s lows at 0.8530.
USDJPY – another day and another post WW2 low at 75.65 keeps the focus on the downside here, but caution continues to remain the watchword, especially with the Japanese authorities continuing to make rumbling noises on the strength of the yen. Further measures to weaken the yen cannot be ruled out. To stabilise in the short term the US dollar needs to get back above 76.40 to retarget 77.00
Oct
27th
Market Wrap - 27th October
By Michael Hewson CMC Markets
Equity markets have soared as the prospect of a meltdown of the
European banking system appears to have been averted for now. The
finer details still appear somewhat sketchy, certainly with regard
to the EFSF, but the prospect of a contagion and a
disorderly default appear to have been put to one side for the time
being. The only concern is that this post deal euphoria could well
leave investors with a nasty hangover when they start to look at
the fine print and realise that this solution could well be another
sticking plaster.
On the plus side at least European leaders now have a sense of the stakes they are playing for.
The financial sector has been one of the main sector gainers along with basic resources as investors breathe a collective sigh of relief, that an imminent disaster has been averted, with Barclays (BARC LN) and RBS (RBS LN) surging on the basis that they won’t require any extra funds, while the rest of the banking sector has also raced ahead. Resource stocks have also surged with Vedanta Resources (VED LN) leading the miners as copper prices surge.
Positive earnings have also helped sentiment with Royal Dutch Shell (RDSA LN) the latest in a week of fairly good earnings updates. The company reported a doubling of Q3 profit on the back of high oil prices.
The only sour note has been the performance of more defensive shares like National Grid (NGG LN) and United Utilities (UU. LN), which have underperformed significantly.
U.S. markets soared on the open on a combination of the overnight debt deal agreed in Europe, and as U.S. Q3 GDP came in line with expectations which in turn has boosted confidence that the U.S. economy will continue to rebound strongly after a disappointing first half of 2011. Weekly jobless claims continued their lacklustre performance of recent weeks remaining stubbornly around the 400k mark, while continuing claims have remained on their downward path.
Visa had already set the tone on earnings last night by reporting better than expected Q4 earnings at $1.27c a share on increased credit card spending. In earnings news ExxonMobil Q3 earnings came in as expected at $2.13c a share, while Proctor and Gamble Q1 earnings also came in on expectations of $1.03c a share.
The U.S. dollar has been pulverised today as investors have gorged on risk assets. The risk currencies have soared led higher by the Australian and New Zealand dollar, while a slightly hawkish Swedish Riksbank has seen the Swedish krone push higher as well. German CPI numbers for October also came in slightly above expectations which have raised the possibility the ECB may not cut interest rates next week.
As a result the Euro has pushed above the 1.4100 level to an 8 week high as investors become more confident; however this presents its own problems given how uncompetitive peripheral Europe is, and will magnify the growth problems that Europe faces.
The Pound has found progress tough going after CBI retail sales for October remained in the doldrums, even though they did come in better than expected at -11.
Despite the surge in risk appetite on relief over the debt deal Gold prices have remained firm above $1,700 level, suggesting investors while happy to buy risk assets continue to hedge into gold in the event of another false dawn.
Crude oil prices have also surged on the back of the sharp rally in equity markets but remain below their long term 200 day moving average.
Copper prices have also bounced strongly on relief that a sharp recession in Europe may be averted on the back of this agreement and optimism about the US economy after this afternoon’s U.S. Q3 GDP numbers.
On the plus side at least European leaders now have a sense of the stakes they are playing for.
The financial sector has been one of the main sector gainers along with basic resources as investors breathe a collective sigh of relief, that an imminent disaster has been averted, with Barclays (BARC LN) and RBS (RBS LN) surging on the basis that they won’t require any extra funds, while the rest of the banking sector has also raced ahead. Resource stocks have also surged with Vedanta Resources (VED LN) leading the miners as copper prices surge.
Positive earnings have also helped sentiment with Royal Dutch Shell (RDSA LN) the latest in a week of fairly good earnings updates. The company reported a doubling of Q3 profit on the back of high oil prices.
The only sour note has been the performance of more defensive shares like National Grid (NGG LN) and United Utilities (UU. LN), which have underperformed significantly.
U.S. markets soared on the open on a combination of the overnight debt deal agreed in Europe, and as U.S. Q3 GDP came in line with expectations which in turn has boosted confidence that the U.S. economy will continue to rebound strongly after a disappointing first half of 2011. Weekly jobless claims continued their lacklustre performance of recent weeks remaining stubbornly around the 400k mark, while continuing claims have remained on their downward path.
Visa had already set the tone on earnings last night by reporting better than expected Q4 earnings at $1.27c a share on increased credit card spending. In earnings news ExxonMobil Q3 earnings came in as expected at $2.13c a share, while Proctor and Gamble Q1 earnings also came in on expectations of $1.03c a share.
The U.S. dollar has been pulverised today as investors have gorged on risk assets. The risk currencies have soared led higher by the Australian and New Zealand dollar, while a slightly hawkish Swedish Riksbank has seen the Swedish krone push higher as well. German CPI numbers for October also came in slightly above expectations which have raised the possibility the ECB may not cut interest rates next week.
As a result the Euro has pushed above the 1.4100 level to an 8 week high as investors become more confident; however this presents its own problems given how uncompetitive peripheral Europe is, and will magnify the growth problems that Europe faces.
The Pound has found progress tough going after CBI retail sales for October remained in the doldrums, even though they did come in better than expected at -11.
Despite the surge in risk appetite on relief over the debt deal Gold prices have remained firm above $1,700 level, suggesting investors while happy to buy risk assets continue to hedge into gold in the event of another false dawn.
Crude oil prices have also surged on the back of the sharp rally in equity markets but remain below their long term 200 day moving average.
Copper prices have also bounced strongly on relief that a sharp recession in Europe may be averted on the back of this agreement and optimism about the US economy after this afternoon’s U.S. Q3 GDP numbers.
Oct
27th
Gold Gains after Fall, Eurozone Optimism "May Fade" as "Devil in Details" mean "Endgame Could Be Default or Hyperinflation"
By Ben Traynor (Bullion Vault)
THE SPOT MARKET gold price rallied to $1725 an
ounce Thursday lunchtime in London – 5.1% up from the start of the
week – following a mid-morning dip.
Silver prices continued to see-saw around $33.50 per ounce – 6.7% up for the week so far.
Stock markets meantime surged throughout the morning following news of an agreement between Eurozone leaders at yesterday's crisis summit.
Commodity prices also rallied strongly, while government bonds sold off.
"The optimism could soon fade, which could see participants once again adopt a risk-off stance," warns Marc Ground, commodities strategist at Standard Bank.
"However, given gold's close co-movement with equities recently (the last few days excluded), it is uncertain whether the metal will benefit from a market returning to risk aversion."
The gold price "has come under some pressure," adds Nikos Kavalis, commodities strategist at Royal Bank of Scotland.
"But [it] has been supported by good buying from private banks."
Private sector creditors will take a nominal loss of 50% on their Greek bond holdings, Eurozone leaders agreed early on Thursday morning, following eight hours of negotiations.
"Together with an ambitious reform program for the Greek economy, the [50% haircut] should secure the decline of the Greek debt to GDP ratio with an objective of reaching 120% by 2020," said the official Euro Summit Statement.
Banking sector representatives had previously offered to accept a haircut of 40%.
Eurozone leaders, however, invited the banks' representatives to yesterday's summit "not to negotiate, but to inform them on decisions taken by the 17 [Eurozone member countries]," French president Nicolas Sarkozy said.
Politicians threatened "to move toward a scenario of total insolvency of Greece, which would have cost states a lot of money and which would have ruined the banks," according to Luxembourg's prime minister Jean-Claude Juncker – who chairs the Eurogroup of single currency finance ministers.
The European Central Bank has repeatedly said any losses should be voluntary in order to avoid a credit event – which could trigger payments on credit default swaps, derivative contracts that act as a form of bond insurance.
However, "as far as the analysis for CDS purposes goes [this agreement] doesn't change things," reckons David Geen, general counsel trade body the International Swaps and Derivatives Association.
"As far we can see it's still a voluntary arrangement and therefore we are in the same position as we were with the 21% [haircut] when that was agreed [in July]."
Politicians also agreed to "leverage the resources" of the Eurozone's bailout fund, the European Financial Stability Facility – up to a reported €1 trillion, according to some reports. It remains unclear, however, exactly how this will be done.
"It will be important to detail further the modalities of how this enhanced EFSF will operate and deliver the scale of support envisaged," said Christine Lagarde, managing director of the International Monetary Fund.
One option – approved by the German Bundestag yesterday – involves using EFSF funds to part-insure new government bonds issues. The other would see the EFSF set up a special purpose vehicle which would seek investment from "a combination of resources from public and private financial institutions and investors," according to the official statement.
"The EFSF will have the flexibility to use these two options simultaneously," the statement added. Sarkozy was due to speak to China's president Hu Jintao this afternoon, while Klaus Regling, chief executive of the EFSF, is expected to fly to China tomorrow.
Other members of the BRICS – the group of emerging nations that comprises Brazil, Russia, India, China and South Africa – are however reportedly reluctant to provide funding directly to Europe. "Brazil is not considering it," the country's finance minister Guido Mantega said yesterday.
"I believe that European countries do not need funds from Brazil to buy bonds...They have to find solutions to the European problems within Europe."
Europe's leaders also agreed that the continent's banking sector requires "a significantly higher capital ratio of 9%." Banks will have until the end of June next year to raise fresh capital.
"Banks should first use private sources of capital...[and they] should be subject to constraints regarding the distribution of dividends and bonus payments until the target has been attained. If necessary, national governments should provide support, and if this support is not available, recapitalization should be funded via a loan from the EFSF in the case of Eurozone countries."
France's central bank reports that the country's four largest banks – which make up 80% of the French banking sector – will need to make up a combined shortfall of €8.8 billion to meet the new requirement. Germany's Commerzbank says it needs €2.9 billion.
Despite this, banking stocks were the biggest gainers as European stock markets rallied strongly Thursday morning – with Germany's DAX up over 4% by lunchtime.
"While the headlines look good, the devil is in the details," warns Damien Boey, Sydney-based equity strategist at Credit Suisse.
"On a long view, I'm bearish on the end-game for all the highly indebted economies (including Europe, the US, Japan and the UK)," adds Gerard Minack, chief market strategist at Morgan Stanley. "There is no historical precedent for economies as indebted as these to avoid default. There are two ways to default: open default typically associated with recession/depression, or surreptitious default associated with inflation/hyper-inflation."
"The deal isn't the game changer," says Dominic Rossi, chief investment officer at Fidelity. "The eye of the storm will now move to Rome and its fragile government...Italy's 120% debt-to-GDP doesn't look any more sustainable today than yesterday. Europe is destined for a multi-year workout during where economic growth will be very restrained."
Away from Europe, provisional US third quarter economic growth data are published this afternoon, with most analysts forecasting a slight improvement on Q2's 1.3% year-on-year GDP growth.
"With the heat off Europe for the moment, todays US economic data could be the news to look out for," reckons one London-based gold bullion dealer.
"Markets will be particularly keen to see whether GDP will meet or surpass the predicted improvement, but expect a wobble if figures fall short."
Ben Traynor
BullionVault
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Silver prices continued to see-saw around $33.50 per ounce – 6.7% up for the week so far.
Stock markets meantime surged throughout the morning following news of an agreement between Eurozone leaders at yesterday's crisis summit.
Commodity prices also rallied strongly, while government bonds sold off.
"The optimism could soon fade, which could see participants once again adopt a risk-off stance," warns Marc Ground, commodities strategist at Standard Bank.
"However, given gold's close co-movement with equities recently (the last few days excluded), it is uncertain whether the metal will benefit from a market returning to risk aversion."
The gold price "has come under some pressure," adds Nikos Kavalis, commodities strategist at Royal Bank of Scotland.
"But [it] has been supported by good buying from private banks."
Private sector creditors will take a nominal loss of 50% on their Greek bond holdings, Eurozone leaders agreed early on Thursday morning, following eight hours of negotiations.
"Together with an ambitious reform program for the Greek economy, the [50% haircut] should secure the decline of the Greek debt to GDP ratio with an objective of reaching 120% by 2020," said the official Euro Summit Statement.
Banking sector representatives had previously offered to accept a haircut of 40%.
Eurozone leaders, however, invited the banks' representatives to yesterday's summit "not to negotiate, but to inform them on decisions taken by the 17 [Eurozone member countries]," French president Nicolas Sarkozy said.
Politicians threatened "to move toward a scenario of total insolvency of Greece, which would have cost states a lot of money and which would have ruined the banks," according to Luxembourg's prime minister Jean-Claude Juncker – who chairs the Eurogroup of single currency finance ministers.
The European Central Bank has repeatedly said any losses should be voluntary in order to avoid a credit event – which could trigger payments on credit default swaps, derivative contracts that act as a form of bond insurance.
However, "as far as the analysis for CDS purposes goes [this agreement] doesn't change things," reckons David Geen, general counsel trade body the International Swaps and Derivatives Association.
"As far we can see it's still a voluntary arrangement and therefore we are in the same position as we were with the 21% [haircut] when that was agreed [in July]."
Politicians also agreed to "leverage the resources" of the Eurozone's bailout fund, the European Financial Stability Facility – up to a reported €1 trillion, according to some reports. It remains unclear, however, exactly how this will be done.
"It will be important to detail further the modalities of how this enhanced EFSF will operate and deliver the scale of support envisaged," said Christine Lagarde, managing director of the International Monetary Fund.
One option – approved by the German Bundestag yesterday – involves using EFSF funds to part-insure new government bonds issues. The other would see the EFSF set up a special purpose vehicle which would seek investment from "a combination of resources from public and private financial institutions and investors," according to the official statement.
"The EFSF will have the flexibility to use these two options simultaneously," the statement added. Sarkozy was due to speak to China's president Hu Jintao this afternoon, while Klaus Regling, chief executive of the EFSF, is expected to fly to China tomorrow.
Other members of the BRICS – the group of emerging nations that comprises Brazil, Russia, India, China and South Africa – are however reportedly reluctant to provide funding directly to Europe. "Brazil is not considering it," the country's finance minister Guido Mantega said yesterday.
"I believe that European countries do not need funds from Brazil to buy bonds...They have to find solutions to the European problems within Europe."
Europe's leaders also agreed that the continent's banking sector requires "a significantly higher capital ratio of 9%." Banks will have until the end of June next year to raise fresh capital.
"Banks should first use private sources of capital...[and they] should be subject to constraints regarding the distribution of dividends and bonus payments until the target has been attained. If necessary, national governments should provide support, and if this support is not available, recapitalization should be funded via a loan from the EFSF in the case of Eurozone countries."
France's central bank reports that the country's four largest banks – which make up 80% of the French banking sector – will need to make up a combined shortfall of €8.8 billion to meet the new requirement. Germany's Commerzbank says it needs €2.9 billion.
Despite this, banking stocks were the biggest gainers as European stock markets rallied strongly Thursday morning – with Germany's DAX up over 4% by lunchtime.
"While the headlines look good, the devil is in the details," warns Damien Boey, Sydney-based equity strategist at Credit Suisse.
"On a long view, I'm bearish on the end-game for all the highly indebted economies (including Europe, the US, Japan and the UK)," adds Gerard Minack, chief market strategist at Morgan Stanley. "There is no historical precedent for economies as indebted as these to avoid default. There are two ways to default: open default typically associated with recession/depression, or surreptitious default associated with inflation/hyper-inflation."
"The deal isn't the game changer," says Dominic Rossi, chief investment officer at Fidelity. "The eye of the storm will now move to Rome and its fragile government...Italy's 120% debt-to-GDP doesn't look any more sustainable today than yesterday. Europe is destined for a multi-year workout during where economic growth will be very restrained."
Away from Europe, provisional US third quarter economic growth data are published this afternoon, with most analysts forecasting a slight improvement on Q2's 1.3% year-on-year GDP growth.
"With the heat off Europe for the moment, todays US economic data could be the news to look out for," reckons one London-based gold bullion dealer.
"Markets will be particularly keen to see whether GDP will meet or surpass the predicted improvement, but expect a wobble if figures fall short."
Ben Traynor
BullionVault
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Oct
27th
Pre Market and FX Commentary - 27th October
By Michael Hewson CMC Markets
EU leaders finally reached an agreement in the early hours of the
morning, but as to whether it was the big bazooka the markets were
looking for, only time will tell. The question is whether it will
be enough in the long term, or whether it has merely put off the
day of reckoning, for a little while longer.
While we now have some numbers to go on it will be all rather pointless of leaders don’t find a way to stimulate growth and we still have the question of Italy’s finances.
A bank recapitalisation plan has been agreed with banks required to hold up to 9% of tier 1 capital by June next year, with a figure of €100bn mooted. Given that the extent of private sector involvement (PSI) for Greek haircuts has finally been agreed at 50% it is difficult to estimate how EU leaders arrived at the figure of €100bn, which seems rather low, given the 50% amount agreed.
The German Bundestag ratified the leveraging up of the EFSF to over €1trn, but the final details won’t be know until the end of November, while the head of the EFSF has gone on a round the world trip to the BRIC’s economies begging bowl in hand to try and persuade these emerging economies to put money into the (SPIV) Special Purpose Investment Vehicle, something Brazil was said to have ruled out yesterday.
With all the focus on the debt crisis it is easy to forget that the European economy is moribund in the extreme, and today’s October German CPI numbers will be closely monitored for further weakening in inflationary pressures in the hope that next week the ECB will cut interest rates in an effort to stimulate some growth and take some of the heat out of peripheral bond yields. Expectations are for prices to come in flat for October, with a year on year change of 2.5%.
Eurozone confidence figures are also due out for October, but given the economic back drop it is unlikely they will provide much comfort with industrial confidence expected to slip further to -7, while economic confidence is expected to slip to 93 from 95.
In the UK yesterday’s CBI business optimism and industrial orders plummeted by much more than expected highlighting the overhang of the crisis in Europe on output in the UK sending the pound plunging. Today’s CBI sales numbers aren’t expected to offer much comfort either with expectations of a decline to -16 from -15.
Growth in the U.S. economy will also be under scrutiny later on in the day with the release of the first incarnation of Q3 GDP with expectations high of a strong rebound from Q2’s 1.3% number to 2.5%. There is a concern that the markets could be setting the bar a touch too high here given some of the shocking manufacturing data seen over the past couple of months. U.S. weekly jobless claims are expected to remain around the 400k so no great shakes there.
EURUSD – the euro pushed higher early this morning the edging up towards the 200 week MA’s at 1.3990. It needs to close above here this week to mark a turnaround, though it could go to 1.4100 which is the 200 day MA. 1.4014 is also 61.8% of the 1.4550/1.3150 down move. The euro needs to break back below 1.3820 to retarget last week’s lows at 1.3650, which is the main obstacle to a test towards 1.3520. The outlook remains for a longer term move towards 1.3050, which is the 61.8% retracement level of the 1.1880/1.4940 up move.
GBPUSD – continues to remain fairly well supported pushing back above 1.6000 yesterday. The pound has potential to head towards 1.6105 which is 61.8% Fibonacci retracement of the down move from 1.6620 to 1.5270. To reopen the downside the pound needs to break back below last week’s 1.5850 resistance which was the 50% retracement of the same move. Back below 1.5850 retargets the 1.5670/80 area as well as last weeks low at 1.5630.
EURGBP – the single currency continues to struggle near the range highs at the 0.8790/00 area and the recent range remains intact with the bias remaining lower. Interim resistance can be found around the 0.8730 area. Only below the 0.8650 area has the potential to see a retest of this month’s lows at 0.8530. A break below 0.8530 looks for a test of 0.8455, 61.8% retracement of the 0.8065/0.9085 up move.
USDJPY – yesterdays new post war low at 75.70 keeps the focus on the downside here, but caution remains the watchword, especially with the Japanese authorities keeping a close eye on the increasing strength of the yen. Further measures to weaken the yen cannot be ruled out. To stabilise in the short term the U.S. dollar needs to get back above 76.40 to retarget 77.00. The recovery in U.S. bond yields, while generating some uplift more hasn’t generated the momentum needed for a move beyond 77.00 let alone 78.00
While we now have some numbers to go on it will be all rather pointless of leaders don’t find a way to stimulate growth and we still have the question of Italy’s finances.
A bank recapitalisation plan has been agreed with banks required to hold up to 9% of tier 1 capital by June next year, with a figure of €100bn mooted. Given that the extent of private sector involvement (PSI) for Greek haircuts has finally been agreed at 50% it is difficult to estimate how EU leaders arrived at the figure of €100bn, which seems rather low, given the 50% amount agreed.
The German Bundestag ratified the leveraging up of the EFSF to over €1trn, but the final details won’t be know until the end of November, while the head of the EFSF has gone on a round the world trip to the BRIC’s economies begging bowl in hand to try and persuade these emerging economies to put money into the (SPIV) Special Purpose Investment Vehicle, something Brazil was said to have ruled out yesterday.
With all the focus on the debt crisis it is easy to forget that the European economy is moribund in the extreme, and today’s October German CPI numbers will be closely monitored for further weakening in inflationary pressures in the hope that next week the ECB will cut interest rates in an effort to stimulate some growth and take some of the heat out of peripheral bond yields. Expectations are for prices to come in flat for October, with a year on year change of 2.5%.
Eurozone confidence figures are also due out for October, but given the economic back drop it is unlikely they will provide much comfort with industrial confidence expected to slip further to -7, while economic confidence is expected to slip to 93 from 95.
In the UK yesterday’s CBI business optimism and industrial orders plummeted by much more than expected highlighting the overhang of the crisis in Europe on output in the UK sending the pound plunging. Today’s CBI sales numbers aren’t expected to offer much comfort either with expectations of a decline to -16 from -15.
Growth in the U.S. economy will also be under scrutiny later on in the day with the release of the first incarnation of Q3 GDP with expectations high of a strong rebound from Q2’s 1.3% number to 2.5%. There is a concern that the markets could be setting the bar a touch too high here given some of the shocking manufacturing data seen over the past couple of months. U.S. weekly jobless claims are expected to remain around the 400k so no great shakes there.
EURUSD – the euro pushed higher early this morning the edging up towards the 200 week MA’s at 1.3990. It needs to close above here this week to mark a turnaround, though it could go to 1.4100 which is the 200 day MA. 1.4014 is also 61.8% of the 1.4550/1.3150 down move. The euro needs to break back below 1.3820 to retarget last week’s lows at 1.3650, which is the main obstacle to a test towards 1.3520. The outlook remains for a longer term move towards 1.3050, which is the 61.8% retracement level of the 1.1880/1.4940 up move.
GBPUSD – continues to remain fairly well supported pushing back above 1.6000 yesterday. The pound has potential to head towards 1.6105 which is 61.8% Fibonacci retracement of the down move from 1.6620 to 1.5270. To reopen the downside the pound needs to break back below last week’s 1.5850 resistance which was the 50% retracement of the same move. Back below 1.5850 retargets the 1.5670/80 area as well as last weeks low at 1.5630.
EURGBP – the single currency continues to struggle near the range highs at the 0.8790/00 area and the recent range remains intact with the bias remaining lower. Interim resistance can be found around the 0.8730 area. Only below the 0.8650 area has the potential to see a retest of this month’s lows at 0.8530. A break below 0.8530 looks for a test of 0.8455, 61.8% retracement of the 0.8065/0.9085 up move.
USDJPY – yesterdays new post war low at 75.70 keeps the focus on the downside here, but caution remains the watchword, especially with the Japanese authorities keeping a close eye on the increasing strength of the yen. Further measures to weaken the yen cannot be ruled out. To stabilise in the short term the U.S. dollar needs to get back above 76.40 to retarget 77.00. The recovery in U.S. bond yields, while generating some uplift more hasn’t generated the momentum needed for a move beyond 77.00 let alone 78.00
Oct
26th
Market Wrap - 26th October
By Michael Hewson CMC Markets
European markets have been rather choppy today after initially
gaining on positive news that a 50% Greek haircut
had been all but agreed and the German Bundestag
ratified the leveraging of the EFSF.
These gains were rather short-lived after news broke that the Greek PSI haircut talks were, in fact deadlocked, while news that the composition of the EFSF would be delayed until November, tempered expectations of any concrete agreement later this evening.
The day has been notable for a string of earnings announcement from a number of companies including British American Tobacco (BAT LN), GlaxoSmithKline (GSK LN) and ARM Holdings (ARM LN). British American Tobacco reported revenues up 7% in the year to date with increasing market share in Eastern Europe, though sales volumes were down slightly, due to duty increases.
Pharmaceutical giant GlaxoSmithKline (GSK LN) saw sales rise 4.3% to £7.1bn, slightly beating analyst estimates. Smart phone chip maker ARM Holdings saw its profits more than double to £43m for Q3, driven by sales of Apple’s iPad, and other mobile products.
Other gainers have been gold and silver miners Fresnillo (FRES LN) and Randgold Resources (RRS LN) as precious metals push higher. On the downside the biggest faller is Smiths Group (SMIN LN) after the share went ex-div, while retailer Next (NXT LN) is on the slide after a broker downgrade to “hold” by Deutsche Bank.
U.S. markets opened well in the black on the back of a raft of positive earnings announcements, offsetting the disappointing Amazon numbers that came in after the close last night. These gains have been somewhat eroded by some of the negative news flow out of Europe. Aircraft maker Boeing set the ball rolling blasting away expectations of Q3 growth of $1.10c, coming in at $1.46c a share. Motor manufacturer Ford added to the positive tone as sales rose in Q3 and beat forecasts, coming in at $0.46c a share, even though the company took a charge for hedging on commodities.
U.S. durable goods orders for September came in slightly better than expected but were still down 0.8%.
The Euro had until the afternoon session maintained its remarkably resilient tone despite the continued uncertainty emanating from European capitals. German Chancellor Angela Merkel in a speech to the Bundestag laid out the consequences of a failure to leverage up the EFSF bailout fund in a vote later today. Reports that a 50% Greek debt haircut are “a done deal” has helped sentiment, but reports that the IMF thinks the haircut should be even higher at 75% has kept the picture blurred.
In the UK CBI Business optimism and industrial orders have plummeted by much more than expected highlighting the overhang of the crisis in Europe on output in the UK sending the Pound plunging.
The Australian dollar has also plunged today on a softer rate outlook after this morning’s CPI data came in on the soft side.
Gold and silver continues to push higher as uncertainty remains about the uncertainty in Europe given the options available to policy makers.
Oil prices slipped lower in the afternoon session as a softer tone in equity markets dragged it lower as inventories came in higher than expected.
Copper prices have remained underpinned helped by hints from Chinese policymakers that the next move in monetary policy might be an easing of policy.
These gains were rather short-lived after news broke that the Greek PSI haircut talks were, in fact deadlocked, while news that the composition of the EFSF would be delayed until November, tempered expectations of any concrete agreement later this evening.
The day has been notable for a string of earnings announcement from a number of companies including British American Tobacco (BAT LN), GlaxoSmithKline (GSK LN) and ARM Holdings (ARM LN). British American Tobacco reported revenues up 7% in the year to date with increasing market share in Eastern Europe, though sales volumes were down slightly, due to duty increases.
Pharmaceutical giant GlaxoSmithKline (GSK LN) saw sales rise 4.3% to £7.1bn, slightly beating analyst estimates. Smart phone chip maker ARM Holdings saw its profits more than double to £43m for Q3, driven by sales of Apple’s iPad, and other mobile products.
Other gainers have been gold and silver miners Fresnillo (FRES LN) and Randgold Resources (RRS LN) as precious metals push higher. On the downside the biggest faller is Smiths Group (SMIN LN) after the share went ex-div, while retailer Next (NXT LN) is on the slide after a broker downgrade to “hold” by Deutsche Bank.
U.S. markets opened well in the black on the back of a raft of positive earnings announcements, offsetting the disappointing Amazon numbers that came in after the close last night. These gains have been somewhat eroded by some of the negative news flow out of Europe. Aircraft maker Boeing set the ball rolling blasting away expectations of Q3 growth of $1.10c, coming in at $1.46c a share. Motor manufacturer Ford added to the positive tone as sales rose in Q3 and beat forecasts, coming in at $0.46c a share, even though the company took a charge for hedging on commodities.
U.S. durable goods orders for September came in slightly better than expected but were still down 0.8%.
The Euro had until the afternoon session maintained its remarkably resilient tone despite the continued uncertainty emanating from European capitals. German Chancellor Angela Merkel in a speech to the Bundestag laid out the consequences of a failure to leverage up the EFSF bailout fund in a vote later today. Reports that a 50% Greek debt haircut are “a done deal” has helped sentiment, but reports that the IMF thinks the haircut should be even higher at 75% has kept the picture blurred.
In the UK CBI Business optimism and industrial orders have plummeted by much more than expected highlighting the overhang of the crisis in Europe on output in the UK sending the Pound plunging.
The Australian dollar has also plunged today on a softer rate outlook after this morning’s CPI data came in on the soft side.
Gold and silver continues to push higher as uncertainty remains about the uncertainty in Europe given the options available to policy makers.
Oil prices slipped lower in the afternoon session as a softer tone in equity markets dragged it lower as inventories came in higher than expected.
Copper prices have remained underpinned helped by hints from Chinese policymakers that the next move in monetary policy might be an easing of policy.
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