Jun
29th
Market Wrap - 29th June
By Michael Hewson CMC Markets
Today’s relief rally in European markets appears to have a lot
more stick-ability than previous ones after German Chancellor
Angela Merkel’s apparent climb-down on direct recapitalisations
of European banks from the European bailout funds.
Only last week the German Chancellor was insisting that these
could not happen because as German Chancellor she would have no
control over how the money was allocated. How quickly things
change and given the market’s reaction today you could be
forgiven for thinking it’s a game changer.
Italian PM Mario Monti’s insistence that something was done to
help bring down sovereign bond yields appears to have bought some
time for EU leaders, the only concern is that nothing tangible
will change before the end of this year. Given the bleak outlook
for growth in Europe it’s not likely that markets will be happy
with that.
In any case the biggest gainers have been basic resources and
industrial stocks as equity markets jump sharply higher as we
head into the end of week, month and quarter. Rising commodity
prices have seen mining stocks jump sharply with Rio
Tinto (RIO LN), Vedanta (VED LN) and
Antofagasta (ANTO LN).The biggest gainer is
Irish building materials group CRH (CRH LN)
continuing its recent gains on some potential positive news about
a new road building plan in the U.S. Banking stocks have bounced
back somewhat from yesterday’s sharp declines but the LIBOR
scandal continues to act as a brake on any advances on potential
litigation fears and concerns about further revelations.
On the downside the more defensive sectors have underperformed
with utilities stocks the predominant laggards, despite an upbeat
note from UBS stating that the sector is in a “sweet spot”.
Pennon Group (PNN LN), United Utilities (UU. LN)
and Severn Trent (SVT LN) have slid back. Mobile
telecoms giant Vodafone (VOD LN) has also
slipped back after being downgraded by Jeffries.
U.S. markets jumped sharply on the open taking their cues from
Europe’s morning relief rally, ignoring disappointing personal
income and spending data for May.
Stocks in focus include Blackberry owner
Research in Motion after the company posted a
quarterly loss of $0.37c a share. The company admitted that the
next few quarters were going to be very challenging. Sportswear
maker Nike’s results also disappointed the
market, coming in well shy of analysts’ expectations of $1.37c a
share at $1.17c. Car maker Ford also reported
that losses in Europe will increase sharply in the second quarter
due to poor European sales.
Concerns about the pace of the U.S. recovery were assuaged when
the Chicago PMI for June came in above
expectations at 52.9. University of Michigan consumer
confidence also slipped back for June.
The U.S. dollar has been spanked across the board today with
strong gains in all the commodity currencies led by the
Australian dollar and Norwegian Krone.
The Euro has also rallied strongly shrugging off disappointing
German retail sales numbers for May. It would
appear that markets appear more concerned about the banking band
aid than the fact that the European economy remains very much in
a rut as consumers rein back spending over concerns about the
outlook for growth.
Crude oil prices have rallied strongly on this
morning’s EU deal, however given that the EU oil embargo on Iran
is due to start this weekend, and the fact that oil has suffered
its worst quarter since 2008, some bargain buying was probably
inevitable.
Copper prices have also jumped sharply to its
highest levels in a month on general optimism that EU leaders
might have taken the first steps to containing a meltdown in
Europe.
The weakness in the U.S. dollar today has seen gold
prices rally strongly
Jun
29th
Gold Ends Week with Rally
By Ben Traynor (Bullion Vault)
Market commentary from BullionVault
NB This report was written at 12.00 GMT. A video update is available here
SPOT MARKET gold prices hit $1584 an ounce ahead of Friday's US trading – a 2.3% rise from the previous day's low – while stocks, commodities and the Euro also rallied following news of an "important" agreement at the European Union summit in Brussels.
NB This report was written at 12.00 GMT. A video update is available here
SPOT MARKET gold prices hit $1584 an ounce ahead of Friday's US trading – a 2.3% rise from the previous day's low – while stocks, commodities and the Euro also rallied following news of an "important" agreement at the European Union summit in Brussels.
Silver prices climbed to $27.38 by lunchtime in
London – a 4.6% gain on yesterday's low.
"Resistance [for gold prices] is at the top of the past week's range
in the $1587-88 area," says technical analysts at bullion bank
Scotia Mocatta, who add that further resistance is seen at
$1625.
News of an agreement among European leaders on the use of bailout
funds ""has been positive for the Euro and positive for
confidence in general," adds Scotia's head of precious metals
Simon Weeks.
"[This] means that equities and commodities, including gold for
the time being, have all received a shot in the arm."
European leaders meeting in Brussels have asked the European
Council to consider proposals for the creation of a single
Eurozone banking supervisor "as a matter of urgency by the end of
2012", an summit statement issued early on Friday said.
The creation of a supervisory body could then be followed by
allowing money from bailout funds to directly recapitalize banks,
rather than being loaned to governments for that purpose, the
statement continued.
"We affirm that it is imperative to break the vicious circle
between banks and sovereigns," said the statement from the EU
summit, which continued Friday.
European leaders also confirmed that assistance given by the
European Financial Stability Facility to Spain's government – up
to €100 billion to fund banking sector restructuring – will
transfer to the permanent bailout fund the European Stability
mechanism when it becomes operational next month.
The loans will transfer to the ESM "without gaining seniority
status" over other Spanish government bonds.
The statement also included a commitment to use "existing
EFSF/ESM instruments in a flexible and efficient manner in order
to stabilize markets".
"We have taken important decisions last night," said German
chancellor Angela Merkel, who prior to the summit expressed
opposition to using bailout fund to buy bonds.
"We agreed that if countries need the instruments to buy bonds on
the primary or secondary market from the EFSF or ESM
then...conditionality would apply."
A country report would need to be presented and a memorandum of
understanding drawn up, Merkel added.
"That would be the case if Spain or Italy, with regards to their
interest burden, make use of such instruments."
Benchmark yields on Spanish 10-Year government bonds fell as low
as 6.4% this morning, their lowest level this week. Italian
10-Year yields traded as low as 5.8%, also a weekly low.
"While not unwelcome, we do not see [the summit agreement] as a
game changer," says a note from Societe Generale.
"We remain concerned that the EFSF/ESM will be seen as lacking in
both efficiency and size to offer credible support to Spain
and/or Italy if requested. Attention is thus likely to turn again
to the European Central Bank."
European stock markets rallied this morning, with Germany's DAX
up around 2.5% by lunchtime, though it remained 1.6% off last
week's high. Spain's IBEX index was up 2.7%, while Italy's FTSE
MIB gained 3.3%, although both indexes remained below June
highs.
The Euro jumped 1.3% to $1.26 following the release of the summit
statement, pushing Euro gold prices briefly below €40,000 per kilo Friday
morning.
Based on London Fix prices, the gold price in Euros looked set by Friday
lunchtime in London to end the second quarter of this year more
or less where it began it. On a year-to-date basis, gold in Euros
was heading for a 3.3% gain over the first half of the year. The
Euro itself has lost around 3% against the Dollar during H1
2012.
Sterling gold prices by contrast looked set for a 0.8% H1
2012 loss, and a 2.8% loss over the second quarter. Gold prices in Dollars meantime were up slightly on
where they started the year, but were sitting on a 4.9% quarterly
loss by lunchtime in London, having given up gains made in the
first three months of the year.
A PM London Gold Fix below $1581 per ounce would see gold record
its largest quarterly loss since Q2 2004 – while a fix below
$1553 would mark the worst quarterly performance this
century.
"After 11 years [of gains] it is only natural that gold stops and
pauses for breath before taking the next step higher," says Ole
Hansen, commodities strategist at Saxo Bank.
"The worry is obviously that momentum has been completely lost
and leveraged players (such a hedge funds) have left the
building...they will come back, but the market needs to reassert
itself before that happens, as they are more followers than
instigators of trends."
Over in India meantime, Rupee gold prices fell to a two-week low Friday, as the
Rupee gained against the Dollar, newswire Reuters reports.
"There was demand yesterday evening," says Ketan Shroff, director
at Pushpak Bullion in Mumbai.
"If prices are maintained at this level, we can see some
buying."
Gold demand in India, traditionally the world's biggest market,
was down 29% for the first quarter of 2012 compared to the same
period last year. The Rupee has fallen around 25% against the
Dollar over the last 12 months – while India's government has
twice raised its import duties on gold bullion since the start of 2012.
Jun
29th
Pre Market Commentary - 29th June
By Michael Hewson CMC Markets
Late last night EU leaders managed to agree a
€120bn growth compact along with a €10bn boost
for the European Investment Bank designed to increase
infrastructure financing, as well as helping with funding for
small and medium sized businesses. The agreement also called for
project bonds.
European leaders also agreed to alter the structure of Spain's
bank recapitalisation plan, meaning that the loans aren't added
to the sovereign's balance sheet.
The change of position came after Spain and Italy refused to sign
off the growth plans until action was taken to help bring down
their borrowing costs. Italy was especially insistent having to
pay the highest rates since December last year for 5 and 10 year
paper, while Spanish bond yields once again hit the 7% mark.
The news that EU leaders have also relented and
allowing the bailout funds of the EFSF and/or
the ESM to buy Spanish and Italian bonds
directly, without a troika program and without the
problems of seniority, in place of the ECB, however that in
itself raises its own problems.
The EFSF is soon to be wound down and needs to raise its funds on
the open market, while the ESM doesn't exist yet, though its
biggest contributor Germany should ratify it today in the German
parliament. The problem with that is the fund has a maximum
capacity of €500bn and that includes Spain and Italy's
contribution, so it could well run out of money quite quickly.
Nothing has been agreed on a roadmap to a fiscal compact, a
banking union and further fiscal integration meaning that while
this may have given a short term pop to markets there still
remain a lot of unanswered questions and the fear is that Monti's
intransigent tone may well have damaged relations irreparably in
the longer term, especially with Germany.
EURUSD - yesterday's move below the 1.2430
support area ran out of puff at 1.2405 but nevertheless the move
lower keeps the pressure on the downside towards the 1.2290 lows.
This morning's short squeezes find resistance at the 1.2620 area,
and behind that at 1.2820/30.The primary objective still remains
the 2010 post first Greek bailout lows at 1.1880.
Jun
28th
Market Wrap - 28th June
By Michael Hewson CMC Markets
Against the backdrop of the EU Summit, good news has been hard to
find on the economic front. German unemployment
edged higher in June, while UK GDP showed a
bigger contraction in Q4 than originally
estimated, while Italy managed to sell 5 and 10 year bonds at the
highest yields since December.
Sentiment hasn’t been helped by another scandal plaguing the
banking sector with respect to LIBOR
manipulation as investigations begin to extend to the
rest of the European banking sector. The likelihood is that other
banks could well become embroiled in the controversy given that
Barclays (BARC LN) would have been unlikely to
pull off anything like this on their own. This has hit share
prices hard as investors fear further regulatory burdens on the
beleaguered sector.
At one point Barclays shares were down 17%, while Royal
Bank of Scotland (RBS LN) and Lloyds (LLOY
LN) were also being hit hard.
Whilst all this has been going on, regular side briefings from
un-named EU officials have suggested that the bailout funds could
well be used for direct bond buying purposes something that
Berlin has been opposed to without strict conditionality. Markets
appear to be shrugging this off given the fact it would be no
more than another band aid.
Basic resource stocks are also lower with Polymetal (POLY
LN) and Evraz (EVZ LN) getting
pummelled after being on the receiving end of some broker
downgrades. Good news stories have been hard to find today but
BSkyB (BSY LN) shares are holding up after major
shareholder News Corp announced plans to splits its entertainment
and publishing divisions. Temporary power provider
Aggreko (AGK LN) is also higher after being on
the end of a broker upgrade.
U.S. markets opened lower this morning taking their cues from the
negative sentiment in Europe.
Economic data didn’t offer much in the way of comfort with the
latest revision of U.S. Q1 GDP staying unchanged
at 1.9%, while weekly jobless claims came in at 386k, down from a
revised 392k.
Building on the banking story in Europe news that JP
Morgan’s London Whale trading loss could grow to as much
as $9bn is weighing on the share price with questions continuing
to be asked about Jamie Dimon’s role in the affair.
News Corp also confirmed recent speculation that it would be splitting the company in two with the entertainment business on the one hand and the publishing business on the other.
News Corp also confirmed recent speculation that it would be splitting the company in two with the entertainment business on the one hand and the publishing business on the other.
In earnings news low cost retailer Family Dollar
reported Q3 earnings growth of $1.06c a share below expectations
of $1.07c. After the bell the latest earnings reports for
Nike and Accenture are also
due.
Once again the U.S. dollar has been the currency
of choice today with the biggest decliners being the commodity
currencies of the Canadian, New Zealand and Australian dollar as
fears about the economic outlook throughout the globe weigh on
demand for the raw materials that these countries produce.
The Pound has also slid sharply after GDP data
showed that the economic contraction in Q4 was much deeper than
estimated, while business investment was also shown to have grown
by much less than expected. These figures in turn increase the
likelihood that the Bank of England will ease monetary policy
further at next week’s rate meeting.
The Euro has also had another poor day sliding
against the U.S. dollar after German unemployment came in higher
than expected for June, while an Italian bond auction came in
rather mixed with higher yields on the 5 and 10 year.
Gold and silver prices have slid sharply today
as investors jump into the relative safe haven of the
greenback.
Crude oil prices have remained under pressure
today as economic data continues to disappoint as investors grow
more downbeat about the economic outlook across the world.
We had a jump in German unemployment numbers while U.S.
weekly jobless claims continue to remain elevated.
Jun
28th
Gold Lacks All Safe Haven Interest. Commodities Pull Silver Lower.
By Adrian AshWholesale prices to buy gold ticked back above $1570 per ounce in London trade Thursday lunchtime, but held onto a 0.5% loss for the session as stock markets fell ahead of today's Euro crisis summit in Brussels – the 12th such meeting in 12 months.
"Nein! No! Non!" said the front-page of German finance daily Handelsblatt, urging chancellor Angela Merkel not to concede to calls for weaker monetary or fiscal policy across the 17-nation currency zone.
Syria's state TV meantime reported what it called "terrorist" bomb attacks on the main court in Damascus, while neighboring Turkey deployed anti-aircraft rockets along the border.
"There's no semblance of a safe-haven [in gold] at the moment," says Société Générale's Robin Bhar, quoted by Reuters.
"But as the price goes lower that bid [to buy gold] does come back as you maybe get some renewed investor interest," he adds, citing sovereign wealth funds and central banks.
Silver prices also slipped again early Thursday, "feeling the effects of lower base metals and crude oil prices," according to one dealer, and retreating towards last week's new 2012 lows beneath $26.70 per ounce.
Brent crude – Europe's benchmark oil price – today slipped to $92.25 per barrel, only just above the marginal cost of production according to analysts at Sanford C. Bernstein & Co.
The recent drop "marks the start of the next oil price up-cycle," they believe.
Back in silver bullion, "I suspect some fairly chunky stops will be lurking just under these levels," says refiner and financier MKS's senior trader in Sydney, Alex Thorndike.
"If we get closer, especially considering how thin this market is currently, we could see larger players gunning for these" to drive silver prices still lower, he believes.
Major government bonds meantime pushed higher Thursday morning, nudging 10-year German interest rates down to 1.51% per year as the Euro currency slumped one cent to a 3-week low of $1.2410.
Italy had to pay 6.19% per year today at a sale of new 10-year bonds, up from 6.03% a month ago.
Today in Greece – where bank deposits have apparently turned positive since the election of pro-bailout Samaras party last week, and where police in Thessaloniki said they'd broken up a Euro-coin counterfeiting ring, the country's first such discovery – the new Parliament was sworn in.
New prime minister Antonis Samaras' government yesterday dismissed the senior management of the Greek national bank, risking a revival of "the practice of making political appointments" according to one banker.
Cyprus was granted formal approval for a joint European Union, IMF and European Central Bank bail-out worth €10 billion – well over half the country's annual economic output.
Slovenia "will see a Greek scenario" said its prime minister, Janez Jansa, in a radion interview unless debt-growth is stemmed by further spending cuts and tax hikes.
German unemployment today showed a rise of 7,000 for June, only its third rise of the last 3 years but suggesting that "the resilience of the German labour market is slowly cracking up," according to analysts at ING bank.
Eurozone consumer confidence worsened in June, falling to its worse level since mid-2009 on the European Commission's latest survey. Industrial sentiment worsened to 2.5-year lows.
A raft of UK economic data for the first quarter was revised lower, with GDP now seen contracting by 0.3% from the end of 2011.
"The elevated cost of wholesale funding for banks has continued to be passed through" to mortgage and business borrowers, the Bank of England said today in its latest Credit Conditions report.
Looking ahead, UK lenders see credit getting tighter for corporate borrowers than for households, especially in commercial real estate.
"Markets await news on the EU summit," says Thursday's note from Standard Bank in London, but "not much progress is expected on the key issues...[such as] a move towards a common bond markets, as Germany remains vehemently in opposition.
"Consequently, we feel that the Euro will stay on the backfoot, lending a downward bias to precious metal prices."
Investment bank Morgan Stanley today cut its precious metal forecasts for 2012-2014, mapping the cut onto its outlook for global commodity prices, but remaining long-term bullish.
Morgan Stanley's analysts now see the price to buy gold averaging $1677 per ounce this year, down from the previous forecast of $1825
Adrian Ash
Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2012
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.a
Jun
28th
Pre Market Commentary - 28th June
By Michael Hewson CMC Markets
If Italy and Spain were hoping for a softening of position from
German Chancellor Angela Merkel prior to the start of today’s
EU Summit they were sadly disappointed
yesterday.
If anything the German Chancellor appears to be tiring of being
constantly blamed for the ills of the European continent and as
such it would appear that positions are now starting to become
entrenched.
Financial markets are hoping that EU leaders will be able to come
to some form of agreement about steps towards some form of
banking union and a deposit guarantee scheme, as well as agree to
measures to help lower borrowing costs in Spain and Italy.
Expectations are low so the potential for a positive surprise is
there; unfortunately it seems more likely that nothing tangible
is likely to be agreed given that EU officials are already
playing down expectations.
A plea by Spanish PM Mariano Rajoy for the ECB
to be unleashed to lower Spain’s borrowing costs, or for the
bailout fund to be allowed to buy bonds directly, fell on deaf
ears, while Italian PM Monti pledged to work through until Sunday
night to get some measures announced that would lower borrowing
costs.
Italian PM Mario Monti is especially concerned at the rise in
borrowing costs given that today Italy has yet another 10 year
bond auction. The last auction yielded 6.03% with a bid to cover
of 1.4 and it seems likely that today’s auction will yield higher
than that.
It could be argued that they haven’t been helped by the position
and actions of French President Hollande who as a cheerleader for
having Eurobonds then proceeded to go off message and reduce the
retirement age for some French workers back to 60, as well as
raise the minimum wage, while at the same time urging Germany to
sign a blank cheque to keep the euro together, while their
workers retire at 67. That’s a hard sell to make in any language,
but especially in Germany, a year before an election.
Such actions send a message to Germany and other more fiscally
responsible governments that when all is said and done
governments will always do what is politically expedient at a
local level rather than make painful decisions, and is behind
Germany’s position to insist on strong centralised control of
budgets, before one cent is made available. It’s all the more
difficult when the German economy is only feeling a light breeze
as opposed to a chill wind, with an unemployment rate for June
expected to be confirmed today at 6.7%.
In ordinary times the small matter of UK GDP
could well be a big deal, but we don’t live in ordinary times at
the moment and today’s final Q1 number is likely
to be of secondary interest to markets despite the fact that the
numbers are likely to confirm a contraction of 0.3%. With gilt
yields near historic lows, the fact that the UK has control of
its own central bank and monetary policy makes it a relative safe
haven from events in Europe, on a fiscal level, if not an
economic one.
U.S. Q1 GDP is also expected to be confirmed at
1.9%, while weekly jobless claims are expected to remain around
the 386k mark.
EURUSD – the 1.2430/40 support area continues to
hold for now as pressure builds on the downside. Short squeezes
should be restricted to the 1.2620 area, while there is also
resistance at the 1.2530 area. A break below the 1.2430 area
opens up a test towards the lower end of the recent range at
1.2290. The primary objective still remains the 2010 post first
Greek bailout lows at 1.1880, but we could see a bit of a short
squeeze first.
GBPUSD – the concern expressed yesterday about
the lack of follow through in the topside proved well founded as
the pound slipped back below 1.5620 and subsequently retested the
1.5540 level. Downside risk remains the predominant theme here
and we could well be heading back to the 1.5470/80 level and 14th
and 15th June lows. The 1.5620 level once again becomes
resistance for a move back towards the 200 day MA at 1.5755 which
remains the major resistance, as well as trend line resistance
from the 1.6305 highs at 1.5730. Only a close beyond 1.5755 the
200 day MA, targets 1.5910, which would be the 61.8% retracement
of the 1.6305/1.5270 down move.
EURGBP – the area below the 0.8000 level seems
to be offering quite a bit of support at the moment, however the
key level remains the 0.7950 area. As long as any pullbacks stay
below the 55 day MA and trend line resistance from the highs this
year at 0.8505 continues at 0.8105, then further euro losses are
the preferred scenario. Once below 0.7950 we could well see a
move towards 0.7845 and the November 2008 lows. The key
resistance remains at this months highs at 0.8150 and is the main
obstacle to a move towards 0.8170, the trend line resistance from
the 0.8830 highs last November.
USDJPY – the fall in the U.S. dollar has so far
held above trend line support at 79.35 from the 77.60 lows in
June. We need to stay above the 200 day MA at 78.80 to keep the
current upward bias intact. A sustained move back above 79.80 is
required to stabilise and retest the cloud resistance at 80.43.
This makes this weeks close even more important and a strong
close above the cloud is needed to reboot the bullish U.S. dollar
scenario.If Italy and Spain were hoping for a softening of
position from German Chancellor Angela Merkel prior to the start
of today’s EU Summit they were sadly disappointed yesterday.
Jun
27th
Market Wrap - 27th June
By Michael Hewson CMC Markets
European markets have put to one side concerns about this week’s
upcoming EU summit, choosing instead to focus on a story out of
China that the country could well implement more
proactive policies to shore up growth as fears rise that the
world’s second biggest economy is slowing down faster than
originally envisaged.
These early gains were reinforced this afternoon by
better than expected U.S. economic data which
has also helped underpin sentiment. The more positive tone, while
welcome is set against a backdrop of fairly low volume as
investors remain cautious.
Speculation in some quarters that the ECB may slash deposit rates
next week has also helped underpin markets.
An Italian auction of €9bn of six month T-bills
saw yields shoot up to 2.96% from a previous 2.1%, reinforcing
concerns about the sustainability of the country’s borrowing
costs.
The focus later today is expected to be on a statement from
French President Hollande and German Chancellor Angela Merkel at
6:15pm London.
Amongst the best performing stocks today has once again been
Shire Pharmaceuticals (SHP LN) after its big
fall on Monday, prompted a couple of broker upgrades. Other
gainers include banking stocks with Lloyds Banking Group
(LLOY LN) leading the way boosted by speculation that it
could finally come to an agreement with respect to the sale of
some of its branch network to the Co-operative
Bank as part of the ruling on EU state aid.
Barclay’s (BARC LN) shares are also higher
after the announcement that the bank has reached a settlement
with the FSA with respect to the charges of manipulating LIBOR.
On the downside basic resource stocks have been the biggest
laggards, somewhat surprising given the news out of China, but
this could also be as a result of the potential collapse of the
Glencore (GLEN LN)/Xstrata (XTA LN) merger deal.
Steelmaker Evraz (EVZ LN) is also a big faller
after German sector peer Salzgitter suggested it would struggle
to break even. Interdealer broker ICAP (IAP LN)
is amongst the bigger fallers after going ex-dividend, while
retailer Next (NXT LN) and catering group
Compass (CPG LN) were also lower for the same
reason.
U.S. markets opened higher this morning on the back of the more
buoyant tone in European markets.
Durable goods orders for May were a bright spot
on the headline rate, rising 1.1%, above expectations of 0.5%,
however when big ticket items were stripped out the picture
wasn’t as rosy and missing expectations. U.S. Pending
Home Sales for May also beat expectations coming in at
5.9%, well above expectations of a 1.5% rise and cancelling out
April’s 5.5% decline.
Stocks in focus include Apple after the company
won a victory against Samsung to halt the sales
of the company’s Galaxy Tab in the U.S.
Facebook shares are once again back in the
market cross hairs as they start to become rated, with the
general consensus seeming to be on the negative side.
In other company news Monsanto announced Q3
earnings above expectations of $1.60c, coming in at $1.74c a
share. JP Morgan shares have also been in focus
on speculation that the London Whale trading
loss could be as high as $9bn.
The U.S. dollar has once again been the main
gainer today with one of the biggest fallers being the
Pound, though the pound continues to trade near
its recent highs against the Euro.
The increasing likelihood of further QE from the Bank of England
next week is beginning to weigh on the pound against the U.S.
dollar, while speculation of an ECB rate cut next week is also
weighing on the Euro.
Rising borrowing costs on a short term Italian bond auction
didn’t help sentiment either, while additional comments from
German Chancellor Angela Merkel about
Eurobonds reinforced German opposition to the
concept in the absence of any doubt after yesterdays reported
remarks, that they would not come about in Mrs Merkel’s lifetime.
U.S. crude oil prices have pulled off their lows
despite being weighed down by speculation that inventories will
remain near record levels, however downside does appear to be
limited given the slightly more positive bias today in equity
markets. Inventory data showed a drop of 133k barrels further
underpinning the price.
Brent prices are ticking up slightly ahead of
the start of the EU oil embargo which is due to start on July
1st. There has also been chatter that Saudi military forces have
gone on alert
Gold prices have swung wildly today ahead of
this week’s EU summit as well as the potential for further
monetary easing at next week’s UK and European Central Bank
meetings. Given that we are also coming to the end of the quarter
downside is also likely to be fairly limited given that we’re set
to see only the second negative quarter in gold since the end of
2008
Jun
27th
Pressure Mounting on Gold, But Central banks Still Adding to Reserves
By Ben Traynor (Bullion Vault)
U.S. dollar gold prices dropped as low as $1565
an ounce during Wednesday morning's London trade – 1.4% down on
this week's high – before recovering some ground by lunchtime,
while stock markets posted slight gains ahead of tomorrow's
European Union summit.
Silver prices traded below $27 an ounce for most
of this morning, while other industrial commodities were broadly
flat on the day by lunchtime.
On the currency markets meantime, the Euro was broadly flat
against the Dollar, trading just below $1.25 for most of the
morning.
"We're in a bit of a period over the summer when we are going to
see very little meaningful action by policymakers in three key
regions – Europe, the US and China," reckons Daniel Brebner, head
of metals research at Deutsche Bank.
"Pressures in the gold market will continue to mount...I don't
think there's any kind of catalyst near term for a significant
rebound in gold prices."
Brebner adds however that he expects "very steady buying by
central banks" to continue, which "should help gold prices from
weakening too much".
At tomorrow's EU summit, Italian prime minister Mario Monti is
expected to propose using money from Eurozone bailout funds to
ease sovereign borrowing costs by buying debt on the open market,
the Financial Times reports, despite the policy drawing criticism
from Bundesbank president Jens Weidmann after it was put forward
last week.
Weidmann described the idea as "state financing via the central
bank printing press", prompting Monti to respond that the
Bundesbank chief has "badly misunderstood" the proposal.
Italy sold €9 billion of six-month bills Wednesday, at an average
yield of 2.96% – up from 2.10% last month.
"Today's bill sale points to the sovereign getting this supply
away but at yield levels sufficiently elevated to leave a
niggling doubt at least as to the medium-term sustainability of
the country's public finances," says Rabobank strategist Richard
McGuire.
Italy's rise in borrowing costs follows an auction the previous
day that saw 2-Year yields rise to 4.71%, their highest level
since December.
Italy is due to auction €5.5 billion of 5-Year and 10-Year bonds
tomorrow. On the bond markets, 10-Year bonds traded at yields as
high as 6.2% Wednesday morning, up from 5.9% at the start of
June.
Elsewhere in Europe, German chancellor Angela Merkel told the
German parliament Wednesday there is no "magic formula" that
will solve the Eurozone crisis.
"It is imperative that we don't promise things that we cannot
deliver and that we implement what we have agreed," said Merkel,
adding that joint liability for sovereign debts "can only happen
when sufficient controls are in place."
"I don't see total debt liability as long as I live," German
chancellor Angela Merkel reportedly told her Free Democrat
coalition partners Tuesday.
Over in Madrid, the Spanish government has scrapped a tax rebate
for homeowners brought in six months ago by prime minister
Mariano Rajoy to meet election promises, citing its growing
budget deficit.
"The deficit has started on a downward path and we expect that to
intensify," said deputy budget minister Marta Fernandez Curras
Tuesday.
Here in London, Bank of England governor Mervyn King cited
"worsening...in the [economic] position in Asia and other
emerging markets" as a reason he voted for an additional £50
billion of quantitative easing earlier this month.
"We are in the middle of a deep crisis," King told the Treasury
Committee on Tuesday, "with enormous challenges to put our own
banking system right and challenges for the rest of the world
that they are struggling with."
Proposed additional QE was defeated by five votes to four at the
June Monetary Policy Committee meeting. The MPC makes its next
policy announcement Thursday next week.
The central banks of Kazakhstan, Russia, Turkey and Ukraine were
among those who added to their gold bullion holdings last month,
according to figures published Tuesday by the International
Monetary Fund.
India's central bank meantime is considering banning the sale of
gold coins by the country's banks, according to India press
reports on Wednesday.
Indian trade with Dubai meantime totaled $10 billion in the first
quarter of this year – making India Dubai's biggest trading
partner ahead of China – data published by Dubai Customs show.
gold bullion represented both the biggest import and biggest
export for Dubai.
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.
Jun
27th
Pre Market Commentary - 27th June
By Michael Hewson CMC Markets
This week’s EU summit continues to act as a
cloud over markets with expectations getting lower by the day.
Yesterday’s events did nothing to change the mood of prevailing
pessimism, especially after German Chancellor Angela
Merkel was reported to have ruled out any idea of
jointly guaranteed eurozone debt for "as long as I live", and
thus ruling out any notion that we would see a step towards
Eurobonds at this week’s summit.
These comments were reportedly made to a closed meeting of her
coalition partners so we shall have to wait and see if these
comments are nuanced later today, when she speaks to the German
lower house, ahead of her meeting with French President Francois
Hollande, however the comments don’t leave much room for
manoeuvre.
The German Chancellor is reportedly not happy with a document
published by Herman Van Rompuy, European Council President,
outlining a plan towards banking and fiscal union within the
Eurozone stating that there was not enough focus on controls on
how any money is distributed.
Mrs Merkel’s stance certainly doesn’t make Italian Prime Minister
Mario Monti’s job any easier, where he is coming under pressure
at home, as Italy’s borrowing costs continue to rise on fears
about its own banking system.
This is as result of yesterday’s action by the Italian
government in buying €2bn of bonds from its oldest bank, Monte di
Paschi in an attempt to shore up its tier 1 capital
ratio. This has reinforced concerns about the toxic and symbiotic
link between banks and the sovereigns that have seen Spain
succumb to a banking bailout, raising concerns it could well be
the tip of the iceberg in Italy as well as Spain.
In a sign of the tensions Mr Monti is under he was forced to deny
reports that he had threatened to resign over his and other EU
leader’s failure to convince the German Chancellor of pushing
ahead with the Eurobond idea. The Italian PM is under pressure in
Italy as his reform program has stalled and former PM Berlusconi
is making noises that it wouldn’t necessarily be a bad thing if
Italy left the euro.
Economic data out today includes German CPI
numbers and given the recent sharp declines in commodity
prices a low reading is likely to raise expectations of an ECB
rate cut next week. June CPI on a monthly basis is expected to
show a -0.2% reading lowering the year on year reading to 2.1%.
Import prices are also expected to slide 0.6%
U.S. durable goods for May are expected to rise
0.5%, up from a flat reading in April as worries persist about
the sustainability if the US economic recovery.
EURUSD – yesterday’s test of the 1.2430/40
support area keeps the pressure on the downside. Short squeezes
should be restricted to the 1.2620 area, while there is also
resistance at the 1.2530 area. a break below the 1.2430 area
opens up a test towards the lower end of the recent range at
1.2290. The primary objective still remains the 2010 post
first Greek bailout lows at 1.1880, but we could see a bit of a
short squeeze first.
GBPUSD – yesterday’s push above the 1.5620 area
suggests we could well see a retest towards the 200 day MA at
1.5755 which remains the major resistance, as well as trend line
resistance from the 1.6305 highs at 1.5730. Given the lack of
follow through on the upside there is a risk of a fall back below
1.5620 towards 1.5540. The key support lies at the 1.5470/80
level; the 14th and 15th June lows. A close beyond 1.5755 the 200
day MA, through 1.5780, targets 1.5910, which would be the 61.8%
retracement of the 1.6305/1.5270 down move.
EURGBP – yesterday’s down move in the euro
pushed below trend line support from the recent lows at 0.7950,
and now retargets those same lows. Below 0.7950 could well see a
move towards 0.7845 and the November 2008 lows. The 55 day MA and
trend line resistance from the highs this year at 0.8505
continues to act as a cap on the upside at 0.8105. The key
resistance remains at this months highs at 0.8150 and is the main
obstacle to a move towards 0.8200, the trend line resistance from
the 0.8830 highs last November.
USDJPY – the fall in the U.S. dollar has so far
held above trend line support at 79.25 from the 77.60 lows in
June. We need to stay above the 200 day MA at 78.80 to keep the
current upward bias intact. A move back above 79.80 is required
to stabilise and retest the cloud resistance at 80.43. This makes
this weeks close even more important and a strong close above the
cloud is needed to reboot the bullish U.S. dollar scenario.
Jun
26th
Market Wrap - 26th June
By Michael Hewson CMC Markets
Mixed macro-economic data has kept European markets mired in
mediocrity today, trading sideways as slightly better than
expected German economic news was offset by higher
Spanish and Italian borrowing costs at debt
auctions today.
German June consumer confidence data came in
slightly above expectations, but this was offset by the higher
costs Spain had to pay for 3 and 6 month bills, while demand also
dropped from previous auctions.
Spain had to pay 2.36% for three month money, well above the
previous 0.85% in May. Italy’s borrowing costs also rose at a two
year auction today paying 4.71%, above the previous 4.04%.
Whispers in the market that Spain could well be cut to “junk” by
Moody’s have seen Spanish yields once again edge back towards the
7% level, pushing above 6.8% again.
The Italian government also announced that it was buying €2bn of
bonds from its oldest bank, Monte di Paschi in
an attempt to shore up its tier 1 capital ratio. This has
reinforced concerns about the toxic and symbiotic link between
banks and the sovereigns that have seen Spain succumb to a
banking bailout, raising concerns it could well be the tip of the
iceberg in Italy as well as Spain.
With all sectors negative yesterday we’ve seen the basic resource
sector bounce back a little today
Amongst the main gainers we’ve seen Vedanta Resources
(VED LN), bouncing from one year lows, and Anglo
American (AAL LN) pulling back some ground after
yesterday’s losses. Other gainers include chemicals group
Croda (CRDA LN) which has pushed higher after
being upgraded from “neutral” to “overweight”. Yesterday’s
biggest faller Shire Pharmaceuticals (SHP LN)
has also started to pull back some ground as markets digest the
recent falls relative to the negative effect on future
profits.
Amongst the fallers is outsourcing group Serco (SRP
LN) after the company disappointed with a downgrade of
H1 revenues. Royal Bank of Scotland’s (RBS LN)
share price is now starting to reflect the damage done to its
reputation with respect to the IT outage over the last week as
investors take fright over damage to its reputation as well as
the prospect of lawsuits.
U.S. markets opened marginally higher this morning with concerns
about Europe’s fiscal situation continuing to weigh on sentiment.
Yesterday’s better than expected new home sales numbers appear to
have been overlooked as a “one-off” with Europe’s problems more
of a concern to U.S. investors.
U.S. consumer confidence numbers for June came
in slightly below expectations declining from 64.9 inMay to 62,
while Richmond Fed manufacturing also missed expectations posting
a negative reading of -2, missing expectations of +4.
U.S. stocks in focus include News Corporation,
which is considering splitting its publishing assets like the
Wall Street Journal from its TV business.
Investment bank JP Morgan received a boost from
sector peer Goldman Sachs being added to its “conviction buy”
list while Morgan Stanley received a downgrade,
as it was removed from the same list.
After a big up day yesterday the U.S. dollar has
traded rather more mixed today gaining the most against the Euro,
but losing ground against the Australian and New Zealand
dollar and the Japanese yen.
The Euro has slid back as higher bond yields in
Spain and Italy and combined with continued bickering from
various EU politicians’ further undermined confidence that
anything would be agreed at this week’s EU summit.
The Pound was able to shake off disappointing
public sector borrowing numbers for May which came in higher than
expected, driven by lower tax revenues, and higher unemployment
benefit claims. On a like for like basis the numbers are higher
than at the same time last year.
Bank of England governor Mervyn King’s
pronouncement that we are barely halfway through the current
crisis was shrugged off as investors continue to view the pound
as somewhat of a haven, from events in Europe.
The Japanese yen has continued to push higher again after the
country’s lower house passed the new sales tax rise. In so doing
the threat of a coalition part y split receded in the short term
helping push the yen higher.
A slightly weaker U.S. dollar and more buoyant
equity markets have seen commodity prices rebound as markets
await the next sentiment driver ahead of this week’s EU summit.
Oil prices are edging higher with a number of
key economic announcements due later this week. Upside risk
remains constrained by concerns about the long term growth
outlook across the globe after HSBC followed in the footsteps of
other banks in downgrading its growth outlook for China.
Gold prices have slid back after yesterday’s
gains, with downside likely to be limited as markets take a
breather after yesterday’s uncertainty, ahead of this week’s
European summit.
Copper prices are currently treading water just
above six month lows, weighed down by growth concerns with little
way of a directional bias in the short term.
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