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The FTSE100 is expected to open 15 points lower at 5,856, the DAX is expected to open 24 points lower at 7,4115 and the CAC40 is expected to open 12 points lower at 3,555

European markets look set to open lower this morning as once again concerns about a resolution to the U.S. fiscal cliff keep markets within their recent ranges amidst disappointment over yesterday’s disappointing ISM numbers for November.

 

Yesterday's decision by Spain to ask for €37bn of aid for its banking recapitalisation plan had been widely expected for some time, however one can't help feeling that the amount being asked for could be one of many requests over the coming months. With the aid being conditional on sweeping job cuts in excess of 6,000, and bank branch closures across the country the effects are likely to be felt across the entire Spanish economy, which is already seeing tax revenues shrink sharply.

 

When looking at the state of the economy, the likelihood that the country will miss its fiscal target for 2012 and a further 90k increase in unemployment numbers for November to be confirmed later today, the likelihood remains that the number of non-performing loans can only increase.

The last number, as confirmed by the Bank of Spain last month, was €182bn and with banks in Spain being forced to extend forbearance, losses will only take longer to realise as the economy contracts and the unemployment rate increases.

 

Even though Spanish bond yields have continued to decline in recent weeks it can only be a matter of time before the Spanish Prime Minister will find himself forced to request a sovereign bailout to go with the banking one.

 

As well as the approval by European finance ministers of the Spanish bank bailout, ministers will be discussing the latest terms of the Greek bailout package, as well as a bailout for Cyprus, while the refusal of EU ministers to extend the softened Greece bailout terms to the other program countries Portugal and Ireland is bound to foster feelings of resentment from countries who have played by the rules, and yet appear to be being penalised for it. The subject of a successor to Eurogroup head Jean Claude Juncker is also likely to be a topic for debate in the coming weeks.

 

In the UK yesterday's better than expected manufacturing PMI data for November has raised hopes that the UK economy may be starting to recover in Q4, which thus far has seen some disappointing numbers. Today's construction PMI data is expected to slip back slightly from 50.9 to 50.6, with all eyes on tomorrow's UK budget and Autumn Statement amidst concern about the sustainability of the UK's triple "A" rating.

 

In Asia the Reserve Bank of Australia cut interest rates as expected by 25 basis points in response to recent soft economic data, as well as concern that the high value of the Australian dollar is starting to hurt export competitiveness.

 

EURUSD - yesterday we saw the single currency break above trend line resistance at 1.3060 from the highs this year at 1.3360. The risk is now that we retarget the September highs at 1.3175, and even retest the highs this year at 1.3485. For the downside to open up again we need to see a break back below the 50 day MA and 1.2900 retargets a move towards the 200 day MA at 1.2790, while below that we also have trend line support from the 1.2050 lows which now comes in at 1.2770.

 

GBPUSD - yesterday we saw the pound break through both the 50 day MA at 1.6050 and channel line resistance from the 1.6310 highs which now has the potential to target 1.6180 as well as the 1.6250 resistance from the 1.6745 2011 highs. Only a drop back through 1.6050 undermines this bullish scenario and targets a retest of the 1.5960 lows of last week. Major trend line support remains at 1.5835 from the 1.5270 lows, as well as 1.5660.

 

EURGBP - a tweezers top yesterday at 0.8135 has seen the single currency slip back and could halt the rally towards the October highs at 0.8165 as the next resistance. The move higher could well be undermined by a move below the 0.8100 level towards the 200 day MA support at 0.8050. Also on the downside we have trend line support at 0.8010 from the July lows at 0.7755. 

 

USDJPY - there appears to be a potential double top forming on the four hourly charts with the base at 81.75. If we break below 81.70 then the potential is there for a move towards 80.50, and even 79.90. We need a break above the 82.80 level to target a move towards the March highs above the 84.00 level. Only below the 80.50 level suggests a move back towards the November lows at 79.00.

The FTSE100 is expected to open 12 points lower at 5,788, the DAX is expected to open 13 points lower at 7,319 and the CAC40 is expected to open 15 points lower at 3,487.

As time has elapsed and markets have had time to digest the latest Greek debt deal, the lack of enthusiasm among market participants remains palpable.

 

This is probably down to the fact that details about the debt buyback remain sketchy at best and the IMF has stated its participation remains dependant on the buyback succeeding, not a given considering the premium being offered.

 

The move to cut Greek interest payments also elicited a very strange reaction on peripheral bond markets, as we saw Greek yields fall, along with Italian and Spanish yields. The surprise was seeing Spanish and Italian yields fall given that such a move has the effect of costing the Spanish and Italian governments money, given that they have to raise money at higher rates and lend it to Greece. Not exactly a move guaranteed to help the already precarious fiscal positions of both countries.

  

The new deal needs to be voted on in the national parliaments of Germany later this week, as well as Holland and Finland, and then approved in time for the money to be released on the 13th December, just before the next EU summit.

 

There also remains the small matter of the lack of growth, something the OECD decided to highlight yesterday when it downgraded growth forecasts across the world, with a particular focus on the risks in Europe, downgrading 2013 growth in Europe from 0.9% to -0.1%.

 

For all the focus on Greece this is one area that Europe appears to have forgotten about.

 

Across the other side of the Atlantic the U.S. economy appears to be idling along nicely, albeit at a very slow rate, even though concern about the fiscal cliff is making investors nervous, a fact that saw U.S. stocks dip late on after U.S. majority Senate Leader Harry Reid admitted there has been “little progress” in talks thus far.

 

Consumer confidence is at a four year high and house prices appear to be making a comeback. Today’s Fed Beige book could reinforce this optimism, but it is unlikely to, especially on the East Coast where it would not be unexpected to see some hit to activity from Hurricane Sandy. Previous Beige books have pointed to moderate economic activity with some concern about manufacturing. This seems likely to continue Sandy notwithstanding.

 

EURUSD – yesterday’s failure at 1.3005 trend line resistance from the 2011 1.4940 highs saw the euro slip back to the 1.2920 area near the 50 day MA. A break above 1.3020 has the potential to retarget the September highs at 1.3175. A break back below the 50 day MA and 1.2900 retargets a move towards the 200 day MA at 1.2800, while below that we also have trend line support from the 1.2050 lows which now comes in at 1.2745.

 

GBPUSD – the cable once again failed to overcome the 50 day MA for the third day in a row at 1.6065, also falling short of 1.6100 channel line resistance from the 1.6310 highs. Only above 1.6100 has the potential to target 1.6200 and the October highs. If we drop below 1.6000 we could see a drop to the 1.5970 area. To push conclusively lower we would need to see a move towards and break below 1.5815 trend line support from the 1.5270 lows, as well as 1.5660.

 

EURGBP – yesterday’s bearish daily candle opens up the risk that we’ve seen the highs here and we could now slip back towards 0.8020. We need a move above 0.8115 to suggest a move towards the October highs at 0.8165 remains possible. On the downside trend line support comes in at 0.7990 from the July lows at 0.7755. 

 

USDJPY – having held above support at 81.80 we remain on track for a retest of last week’s highs at 82.85, on the way to a broader move towards the March highs above 84.00. A break below the interim support at 81.80 has the potential to target a move towards the 80.50 and weekly cloud level support. Only below the 80.50 level suggests a move back towards the November lows at 79.00.

The FTSE100 is expected to open 10 points lower at 5,809, the DAX is expected to open 19 points lower at 7,290 and the CAC40 is expected to open 11 points lower at 3,518

It was never likely that this weekend’s election result in Catalonia would make Spanish Prime Minister Rajoy’s life any easier, and so it would appear given that pro-referendum parties in Catalonia appear to have won at least two thirds of the seats, which could strengthen separation fears that could well cause problems further down the line, for the Spanish government.

 

Mr Rajoy has already stated that any decision to hold a referendum would be unconstitutional and thus illegal; and while he can gain some comfort from the fact that the Artur Mas, the existing Catalan President appears to have lost support, it would appear that this support has gone to a much more pro-independence party, the ERC which has doubled its number of seats.

 

This would suggest that the pressure for a referendum could increase, not diminish, especially if current austerity policies push the various parties supporting a referendum on secession, closer together to work together towards that goal.

 

The fact that turnout was the highest in nearly 30 years suggests that the Catalan people now want to have a say on this particular issue, which could well create further uncertainty surrounding Europe’s 4th largest economy at a time when, what they need most, is stability.

 

What the consequences are of this particular outcome could well take a while to unfold, but Mr Rajoy will need to tread carefully politically given that the Catalan region contributes around 20% of Spanish GDP, though it is also the most indebted, owing about €45bn, and has to rely on central government support.

 

At some point next year Mr Rajoy will have to request a bailout from the EU which could well mean the surrender of some fiscal sovereignty in the process, with strong conditionality attached something that will not go down well with Spain’s autonomous regions.

 

Market reaction to this outcome is likely to be determined by the direction of Spanish bond yields which have been falling recently, but could reverse in light of the weekend events.

 

Also today Euro zone finance ministers have yet another opportunity to come to a decision on the long awaited Greece aid program, and whether it will consist of an initial €32bn or the full €44bn, which would have been due by the end of this year. A decision today, or this week, is not a foregone conclusion by any means, despite the recent market gains.
 

There have been reports that the IMF will move from its original insistence that Greece’s debt to GDP ratio must be 120% of GDP by 2020, and moved to 124%, which would be a significant climb-down, especially given that Christine Lagarde has also stated that debt write downs must also be considered. This continues to be rejected out of hand by EU policymakers.

There has also been talk of reducing the interest rate on loans to Greece, and extending maturities, as well as a €10bn debt buyback. There has also been speculation that the ECB would forgo its profits on its SMP program.

The reduction of interest rates on loans could well prove problematic, especially if Greece gets to pay a lower interest rate than the rate the money.

 

EURUSD – Friday’s move higher beyond the 50 day MA and 1.2920 has brought the euro within touching distance of trend line resistance at 1.3005 from the 2011 1.4940 highs. A break here has the potential to retarget the September highs at 1.3175. Any pullbacks are likely to find support around the 1.2910 area where the 50 day MA sits, while below that we also have trend line support from the 1.2050 lows now comes in at 1.2725.

 

GBPUSD – the current pullback has the potential to run up to 1.6100 channel line resistance from the 1.6310 highs, after hitting the 1.6050 level on Friday. Above 1.6100 has the potential to target 1.6200 and the October highs. Any drift below 1.6000 could well find support around the 1.5970 area. To push conclusively lower we would need to see a move towards and break below 1.5810 trend line support from the 1.5270 lows as well as 1.5660.

 

EURGBP – holding above the 200 day MA at 0.8080 last week saw the move to 0.8115 unfold and there remains the possibility of a move towards the October highs at 0.8165, as the current bullish phase continues. A move and close below 0.8080 would undermine the potential for further gains and reopen the downside and move back to 0.8020. On the downside trend line support comes in at 0.7990 from the July lows at 0.7755. 

 

USDJPY – we got to 82.85 last week before slipping back. The U.S. dollar remains on track for the March highs above 84.00, while above the 81.80 area, which was the key breakout level. The break above the weekly cloud at 80.50 for the first time since April looks like the catalyst for further strong gains. Only below the 80.50 level suggests a move back towards the November lows at 79.00.

The economic data out of Europe this week has been nothing short of wretched with Spain and France being hit hard with manufacturing and services data particularly disappointing. The data also suggests that economic growth is likely to remain elusive for the remainder of 2012, and as such will make it doubly difficult for the respective economies to maintain any semblance of growth.

 

Despite the poor data the single currency has remained remarkably resilient, while Spanish yields have remained near their lowest levels of the past few weeks, in anticipation of possible action at today’s ECB rate meeting.

 

There had been some speculation that the ECB might well cut its headline rate further, however given recent comments by ECB council members, as well as this week’s rather elevated factory gate prices figure, this seems unlikely. Markets are more likely to be more interested in what ECB President Draghi has to say about the OMT bond buying program, and whether he is prepared to elaborate on some of the details he first unveiled a month ago.

 

Spain continues to hold out against a bailout, perhaps apprehensive about further conditionality in addition to last week’s announced budget measures, and the country faces a key test today as it seeks to sell up to €4bn of 2, 3 and 5 year bonds. Given the reluctance of Spain to show its hand at this stage there is a possibility that demand might struggle in the face of the bailout uncertainty.

 

Also on the calendar just prior to the ECB rate meeting the Bank of England is set to announce its latest interest rate decision, however no fireworks are expected here despite this week’s less than impressive PMI numbers. The latest tranche of QE is set to run off this month so any further action is likely to happen at next month’s meeting when the Bank of England should have first sight of the initial Q3 GDP numbers, with expectations that the economy may well just about show some flickers of growth.

 

In the U.S. after yesterday’s better than expected ADP numbers attention turns back to the latest weekly jobless claims numbers with predictions of a rise to 370k, up from last week’s surprise 359k figure. Later on in the evening the minutes of the recent FOMC meeting are due to be published and these are likely to be interesting reading in light of the decision to embark on open-ended buying of mortgage back securities. We already know there was one dissenter amongst the voting members, but it will be of particular interest to know how much unanimity there was amongst the non-voting members with respect to this particular decision. This could be particularly important given that there are only two more meetings left in 2012, and the make-up of the voting committee will change at the beginning of next year, and could become more hawkish.

 

EURUSD – the euro continues to tread water below 1.2960 and last weeks highs at 1.2990, while finding support at the 200 day MA at 1.2825. A break through 1.3000 targets the September highs at 1.3175 and bigger trend line resistance at 1.3185, from the 1.4940 highs. A move and close below 1.2820 is needed to retarget the 1.2650 level with key trend line support from the 1.2045 lows now at 1.2700. Only a move above 1.3240, targets 1.3495, the 50% retracement of the entire down move from 1.4940 to 1.2045.

 

GBPUSD – yesterday’s break below 1.6100 trend line support from the August lows at 1.5490 has the potential to target a move towards 1.5915, 38.2% retracement of the up move from 1.5270. Any pullbacks need to break above 1.6200 to retarget last week’s high at 1.6310. It needs a move above resistance and last weeks high at 1.6310 to target a move towards 1.6590, last years August high.

 

EURGBP – the euro continues to edge higher towards the 0.8050 area. A break above here retargets the September highs at 0.8115, and 200 day MA. Any declines should find support at last week’s low at 0.7925, as well as trend line support from the 0.7755 lows at 0.7915, and 55 day MA.

 

USDJPY – yesterday’s break through 78.20 brings a test of the trend line resistance at 78.90 from the 20 April highs at 81.80, into view, as well as the 200 day MA at 79.32. Any weakness should find some support around 78.20 as well the 77.60 level. The 200 day MA at 79.32 remains the main obstacle to a return towards the highs in August at 79.70

Economic data continues to paint a gloomy picture throughout Europe with services data in Spain falling sharply in September, not altogether surprising given the country's reliance on tourism and yesterday's sharp rise in the unemployment numbers.

 

Anyone looking for silver linings elsewhere in Europe would have been disappointed with Italian, French and German equivalents also showing considerable weakness. The weakness of the data points to a second quarter of contraction in Europe, and a recession, raising the likelihood that at some point Spain will have to bite the bullet and request a bailout.

 

In anticipation of just such a request Spanish bond yields have fallen back in the past week, though they are starting to edge higher again. This particular paradox is giving Spanish PM Rajoy some breathing room to avoid asking for a bailout as pressure on yields subsides particularly at the short end.

 

Despite the gloom equity markets continue to remain fairly buoyant, shrugging off comments from IMF chief economist Olivier Blanchard that the global economy will take at least 10 years to emerge from the worst of the current crisis.

 

It's been a tale of two supermarkets on the earnings front today with Tesco's (TSCO LN) and Sainsbury's (SBRY LN) posting their latest trading updates. On the plus side Sainsbury's reported that it had outperformed expectations on its Q2 numbers, with sales up 1.9%.

 

Tesco's was always likely to be under greater scrutiny today after the profits warning the company issued earlier this year, and while today's announcement was better than expected the company still posted its first drop in profits for 18 years, though its sales numbers did improve, halting an 18 month decline.

 

Transport provider FirstGroup's (FGP LN) share price has taken a pummelling today after today's decision to restart the bidding process on the West Coast rail franchise which the company won a few weeks ago, after flaws were found in the approval process. Given that the figures didn't really add up the negative price reaction is somewhat surprising.

 

Mining company Anglo American (AAL LN) is an under performer as concerns rise about strike action in South Africa translates into concerns that the strikes will hurt the company's profitability.

 

On the plus side International Consolidated Airlines (IAG LN) seems to be getting a boost from sector peer EasyJet's (EZJ LN) announcement that it would be raising its profit guidance for the year to September, helped by a rebound in post Olympics holidays.

 

U.S. markets have taken their cues from the better than expected ADP jobs report opening higher after the September numbers came in above expectations, adding 162k jobs above expectations of 140k.

Following on from the better than expected September manufacturing ISM data seen earlier this week the services ISM also beat market expectations coming in at 55.3, well above expectations of 53.4.

In company news Hewlett Packard will be on the receiving end of some tough questioning as CEO Meg Whitman holds her first analyst meeting since taking over as CEO.

Apple shares are also expected to in focus rebounding after yesterday's sharp drop on news that a new tablet or iPad mini is in the works. 

Family Dollar Stores is trading higher after reporting earnings of $0.75c a share, matching analyst expectations.

 

The U.S. dollar has posted significant gains today against the more risk based currencies, pushing higher against the Swedish and Norwegian currencies as well as the New Zealand and Australian dollar.

Against the single currency it still continues to tread water, with the euro continuing to struggle anywhere near the 1.2970 level as Spanish bond yields start to edge back up again, in the absence of any clear direction from the Spanish government as to the timing of a bailout request.

The pound has remained on the back foot against both the US dollar and the euro despite posting the best services PMI in the European session, coming in at 52.2, below expectations of 53.

 

Oil prices have slid sharply today after the Chinese services data hit its lowest levels since March 2011, raising concerns that demand is continuing to fall as the economic outlook continues to darken. Weak European economic data hasn't helped either sending Brent prices head back towards their September lows.

 

On the inventory front, crude oil saw a fall of 482k barrels last week, missing expectations of a gain of 1,500k, while the better ADP numbers haven't really helped stem the downside pressure, as U.S. prices drop back below the $90 mark.

 

Gold prices have remained fairly well bid but continue to struggle below the $1,790 level while silver prices also look well supported with the daily price action showing a golden cross on the 50/200 day moving averages, which historically has shown significant price moves higher on the majority of occasions it has occurred in the last 10 years

While we've seen a small rebound in Europe's markets after yesterday's big declines, the move higher hasn't really been convincing despite talk of further Chinese stimulus measures next week after Chinese National day.

On the economic front, a slight upward revision in UK Q2 GDP to -0.4% was about as good as it got with Eurozone economic confidence data coming in below expectations. This morning's Italian bond auction saw yields come in lower, but so too did demand for the paper with lower bid to cover ratios.

Spanish bond yields on the 10 year remained stuck around the 6% level as data showed that money continued to flow out of Spanish banks, down 5% in August. 

Markets are now waiting with apprehension as to the form the latest Spanish budget will take, given that the announcement has been delayed until nearer the market close.

Mining stocks have pulled back some of their losses from yesterday on the back of Chinese stimulus speculation led by Rio Tinto (RIO LN) and Anglo American (AAL LN). Randgold Resources (RRS LN) is also higher as gold prices hit record highs against the single currency.

Sugar producer Tate and Lyle (TATE LN) is also amongst the better performers, helped in no small part by the company announcing that full year profits would be coming in line with expectations. Also on the plus side, Shire Pharmaceuticals (SHP LN) is higher after being on the receiving end of a broker upgrade. 

On the downside, Compass Group (CPG LN) is not faring that well despite a fairly good trading update, as southern Europe exposure acted as a drag on the company's overall performance. 

U.S. markets opened higher today, taking their cues from the firmer tone in Europe despite some pretty horrid economic numbers that came out just prior to the open. 

The final revision of U.S. Q2 GDP was adjusted lower to 1.3%, with the summer drought cited as a key reason, while durable goods orders fell off a cliff in August, down 13.2%, well outside expectations of -5%. There was a silver lining as weekly jobless claims dropped sharply, coming in at 359k, down from last week's 385k. These numbers are likely to validate the view of the doves on the Fed who voted for more QE earlier this month.

Pending home sales for August were also a disappointment declining 2.6%, missing expectations of a 0.3% rise.

In company news, the following stocks are likely to see some interest with Blackberry maker Research in Motion due to report its latest Q2 numbers after the bell, with expectations of a loss of $0.47c a share. The company has been beset by problems in recent months including this month's network outage in Europe on the same day as the iPhone5 launch.

Sportswear maker Nike is also due to report Q1 numbers with expectations of $1.12c a share, also after the market close.

The Australian dollar has had a fairly good day today after this morning's news with respect to possible Chinese easing as well as the news that the Chinese central bank injected $58bn worth of liquidity into the banking system in an attempt to spur lending and growth. Upside is likely to be tempered somewhat by expectations of a rate cut at next week's RBA rate meeting.

The New Zealand dollar has also had a good day despite some rather mixed business activity and confidence data for September. 

The pound got a bit of a boost from an upward revision of Q2 GDP, which came in at -0.4%, and business investment was also revised higher as well, to post a positive number for the quarter. 

The single currency has struggled somewhat to make any progress at all with economic data mildly disappointing. German unemployment came in pretty much as expected, however deposit outflows from Spanish banks continued in August, down 5%, while the Italian bond auction received mixed reviews. Yields were lower, but so were bid to covers and only €6.65bn out of €7bn was allocated.

The weaker U.S. dollar has prompted a rebound in broader commodity prices with gold rebounding from yesterday's lows. The rebounded was helped in no small part on the China stimulus speculation. Gold has also hit a new all-time high against the euro, above €1,373. 

Crude oil prices have also rebounded for pretty much the same reason, along with a firmer tone on equity markets, rebounding off key support just above $108 on the Brent measure yesterday. U.S. prices have also recovered back above the $90 mark; however the disappointing US data this afternoon has taken some of the steam out of the rebound.

Copper prices have struggled for any discernible direction today despite the China speculation, ahead of the latest HSBC manufacturing PMI data which is due out early on Friday.

For all the euphoria over Draghi's OMT and Bernankes QE3, reality has bitten back hard today as markets have once again woken up to the political and economic realities of the policies being pursued in Europe. 

Austerity protests in Spain last night have been followed by further protests and a general strike in Greece as population's tire of bearing the burden of spending cuts and tax rises against a backdrop of record unemployment and stagnant economies. Images of tear gas and rioting protestors on TV screens don't generally engender confidence in investors that EU leaders have control of the situation in Europe.

The Bank of Spain announced earlier today that Spanish Q3 GDP was likely to show further contraction and further rises in unemployment, confirming yesterday's bleak outlook for the Spanish economy from ratings agency S&P. This has sent Spanish bond yields back above 6% on the 10 year increasing the pressure on the reticent Spanish PM to ask for a bailout.

Moody's also weighed in on Greece predicting that GDP would contract by another 7% in 2012 as the government there attempts to agree on cuts to fill a black hole in finances that continues to grow.

All sectors are down today as markets across Europe plunge with triple digit declines in Germany, Spanish and Italian stock markets.

Financials have been hit hard with Royal Bank of Scotland (RBS LN), Barclays (BARC LN) and Lloyds Banking Group (LLOY LN) dropping sharply. The technology sector has also slid back with ARM Holdings (ARM LN) a particular loser while ex-dividend stocks have magnified the declines with Centrica (CNA LN), Morrisons (MRW LN) and RSA (RSA LN) all trading without their dividend attractions.

The only bright spots are testing firm Intertek (ITRK LN), and British American Tobacco (BAT LN). 

U.S. markets open mixed this morning after yesterday's late sell-off. Comments from Fed member Charles Plosser about the limited impact QE would have may have acted as a small catalyst for yesterday's sell-off, but it really remains all about Europe as investors cash out of equities as images of tear gas and rioting flash across TV screens across the globe.

Today's economic data could have provided a bright spot but unlike yesterday's Case-Shiller report, the new home sales data for August showed a 0.3% drop, missing expectations of a rise of 2.2%. 

Yahoo shares were in focus today after the company named its new CEO, while Microsoft is also expected to see some activity on reports that it is releasing Windows 8 before its fully ready.

The single currency has slipped back once again today as Spanish bond yields push back above 6% and nervousness returns in the wake of the unrest in Greece and Spain. The euro is once again approaching a key level at 1.2825, which is the 200 day MA. A daily close below this level could well see further declines back towards 1.2650. Today's German bond auction also came in light on cover, raising concerns about confidence in in Europe's biggest economy. 

The Swedish krona is also coming under pressure today ahead of some key retail sales data tomorrow. 

The U.S. dollar has been the main beneficiary of this broad currency sell-off despite the recent announcement of unlimited QE from the Fed. It would appear that for all the troubles in the U.S. the problems elsewhere outweigh the downside risks of owning the dollar.

The pound has managed to hold its own fairly well helped in no small part ahead of tomorrow's Q2 GDP revision and a sterling fix related to an EU payment to UK farmers this Friday. 

Gold prices hit a marginal new record high against the euro earlier today and that appears to be keeping a lid on prices against the U.S. dollar, pushing the yellow metal down sharply against the greenback.

Crude oil prices have also tanked with U.S. crude prices dropping below $90 for the first time since early August, not helped by the surprise drop in new home sales, though some of the downside has been tempered by a surprise drop in weekly inventories. 

Brent prices also slid back on the unrest in Europe, but continue to lag well behind the declines in U.S. prices, despite the problems in Europe. 

Copper prices have also dropped sharply on reports from China that the People's Bank of China will continue its prudent monetary policy which suggests that any stimulus may well not be forthcoming in the near future

The continued decline in Spanish bond yields, along with S&P’s decision to state that it would not be downgrading Spain to “junk” any time soon would on the face of it make it much more likely that Spain will defer asking for a bailout in the near future, thus prolonging market anxiety about when and what catalyst could start the ball rolling again, and concentrate political minds.

 

Today’s Spanish bond auction could be one such event when the Spanish government looks to sell €4.5bn of 10 year debt. At one point on Monday yields were above 6%, however since then they have slipped back to close yesterday at 5.693%, still high, but a lot cheaper than at the beginning of the week. The demand will be of particular importance here with a bid to cover of 2.24 on the previous auction, though the yield will definitely be lower than the previous 6.65%.

 

One thing is certain, if today’s bond sale gets away alright, then we could face a long wait until Spanish PM Rajoy feels compelled to seek help for Spain’s ailing economy.

 

The Spanish government continues to face a deteriorating economic outlook as well as political problems in its regions with Catalonia in particular demonstrating a particular secessionist demeanour.

 

Economic data is not expected to offer much comfort today, given the feeble rebound to 47.8 in the August China HSBC manufacturing PMI seen overnight, with the release of the latest services and manufacturing September PMI data for France, Germany and the Eurozone. While some improvement is expected the reality is that all measures are likely to remain stuck firmly in contraction territory at levels between 45 and 49. Manufacturing in particular is expected to be particularly subdued at 46.4 for France and 45.2 for Germany. September consumer confidence in the Eurozone is also expected to come in weak at -24.

 

In an important week for UK economic data yesterday’s MPC minutes focussed on the committee’s concerns about weak growth prospects, and higher inflation, weighing on household incomes. Despite these concerns we’ve seen a mixed reporting season for UK retailers in the past week or so with good numbers from some retailers and caution expressed by others.

 

The release today of the August retail sales numbers will give a good indication of how much of a boost or otherwise was created by the Olympic Games. The concern is that the amount of TV coverage saw a decrease in footfall as people stayed at home, though we may well have seen an increase in food and drink sales as consumers watched events unfold on front of their TV’s. Expectations are for a fall of 0.3%, down from July’s 0.3% rise.

 

In the U.S. the latest weekly jobless claims are expected to fall back after last week’s hurricane Isaac induced jump to 382k, coming in at 370k.

 

EURUSD – the single currency is finding some support around the 1.2990/00 area rebounding from 1.2995, but the onus remains for a move lower while the highs at 1.3170 cap the upside. The key resistance on the upside remains at 1.3230, trend line resistance from the 1.4940 highs of 2011. A move above 1.3240, targets 1.3495, the 50% retracement of the entire down move from 1.4940 to 1.2045. A move below 1.3000 has the potential to see a move back to the 200 day MA at 1.2830 with only a close back below the 200 day MA suggesting a move back towards 1.2650. Key trend line support from the 1.2045 lows now lies at quite some way back at 1.2570.

 

GBPUSD – the cable continues to struggle above 1.6270 suggesting the potential for a downward correction, on a break below 1.6180 towards 1.6050. Below 1.6050 we have trend line support at 1.5970 from the August lows at 1.5490. It needs a move above 1.6305 as to target a move towards 1.6590, last year’s August high. Only a break below 1.5860 has the potential to target 28th August lows at 1.5755. The long term trend line support lies at 1.5610 from the 1.5240 lows.

 

EURGBP – the euro continues to drift back towards the 0.8000 level after this week’s failure to get close to the 200 day MA at 0.8140. This remains the major obstacle to further gains. We now have minor support at the 0.8000 level, while a move below the 0.7950 level suggests a move towards the 0.7880 level.

 

USDJPY – yesterday’s failure to take out trend line resistance at 79.15 from the 20 April highs at 81.80, as well as the 200 day MA at 79.30 keeps the onus on the downside for the U.S. dollar. Any pullbacks should find support around the 78.20 level as markets look to create a base. The 200 day MA at 79.31 remains the main obstacle to a return towards the highs last month at 79.70.

A rebound in Spanish yields in the face of mounting political unrest in Spain has seen markets slip back today as investors book some profits after the Fed induced gains of the last few days. 

Disagreement amongst EU leaders about how to go about implementing the next policy steps on the road to banking union has also seen an element of caution return to what was an almost euphoric end to last week. 

A sense of realism has returned once more as investors realise that the same old problems remain as intractable as ever.

Industrial unrest in Spain against further austerity, as well as concerns about regional fragmentation, has made investors realise that for all the promises of action by politicians and central banks, ultimately the fate of Europe will be decided by the people, and not by political will. 

Amongst the big fallers today we’ve seen Vodafone (VOD LN) slide back after the company announced it was considering setting aside $2.2bn to cover costs from a legal action it is facing from Indian authorities after the Government retrospectively changed the law, after losing a high court battle with the company in January with respect to a tax bill. 

Mining stocks have also given up some of the ground gained in the past few days after data showed that copper inventories in Asia rose slightly in the last week, pointing to slowing demand, sending copper prices down from Friday’s four month highs.

Insurance group Admiral (ADM LN) is also having a poor day after being on the receiving end of a broker downgrade.

U.S. markets opened slightly lower this morning mimicking the weakness in Europe’s markets after U.S. Empire Manufacturing data for September fell sharply to its lowest levels since 2009, declining -10.4 well below expectations of -2. Prices paid rose while New orders fell pointing to a classic stagflationary environment. 

On the plus side Apple continues to be flavour of the month after the company announced more than 2m orders for its new iPhone 5 in the last 24 hours. This pent-up demand suggests that the slowdown in orders seen by Apple in the middle half of this year suggests that consumers were holding back in expectation of this month’s new product release.

On the downside, Alcoa has slid lower on slightly weaker commodity prices 

The Japanese yen has slid back as concerns rise about an escalation in the dispute with China over the Senkaku Islands may put at risk a number of trade deals as Japanese companies shut a number of their Chinese operations in response to escalating violence within China against Japanese expats.

The single currency has had a rather good day, higher against the Japanese yen and the Australian dollar, despite Spanish bond yields starting to edge back up again, and touching the 6% level on the ten year measure. 

Comments from Australian resources minister Martin Ferguson have hit the Australian dollar after he announced that the commodity price boom had ended, and has kept the dollar pressured after it hit six month highs late on Friday. 

The pound has had managed to be one of the better performers today ahead of some important inflation data, due out tomorrow.

Oil prices are being pulled in different directions, underpinned by the Fed induced U.S. dollar weakness as well as Middle East concerns, but capped by demand concerns after Empire Fed manufacturing for September showed a sharp fall to their lowest levels since 2009. 

The slightly firmer U.S. dollar has seen gold prices slide back from last week’s seven month highs as gold bulls take a breather after the sharp move higher. The yellow metal needs to break through the $1,780 level to target further upside, but we could see a slip back towards $1,730 in the short term.

Copper inventories in Shanghai saw a slight rise in the past week, raising concerns of a demand and growth slowdown in the Chinese economy.

European markets have traded in a pretty mixed fashion today ahead of this evenings meeting of the FOMC, where there is a high degree of expectation that the Federal Reserve will embark on a new bond buying program in an attempt to kick start, what appears to be a slowing US economy.

 

The main focus today has been on the proposed tie-up of BAE Systems (BA. LN) and EADS into one of the biggest aerospace companies in the world. After moving sharply higher yesterday to the tune of 11% BAE Systems has subsequently slipped back as brokers have queued up to downgrade the stock with Investec, Societe Generale and Oriel Securities all reducing their ratings, on the basis that cost savings could well take time to filter through, if the deal gets the go-ahead.

 

On the flip side of the defence sector Rolls Royce (RR. LN) is near the top of the leader board as investors sell out of BAE Systems.

 

The retail sector has also come under pressure after Next (NXT LN) posted its latest trading update which saw the company post an increase in first half profits of 10.2%. The company was pretty downbeat on recent trading activity and this has prompted a sharp sell-off.

 

Mining stocks have also looked heavy with Vedanta Resources (VED LN) continuing to look soft in the wake of this week's news out of its Goa mining operations. Glencore (GLEN LN) is also under pressure as investors await the next steps in its long drawn out Xstrata (XTA LN) saga.

 

The best performing sector is in telecoms with Vodafone (VOD LN) pushing higher as it recovers from the 2 month lows it posted yesterday.

 

U.S. markets opened broadly unchanged ahead of this afternoon's Fed meeting as investors exercise caution after recent gains.

 

Economic data released just before the open appears to point to rising energy prices pushing inflation higher as August producer prices came in well above expectations of 1.2% at 1.7%, with energy prices fuelling a large proportion of that rise. Weekly jobless claims also increased to 382k, though a large part of that was down to Hurricane Isaac.

 

Apple shares, on the other hand have opened higher in the wake of yesterday's iPhone 5 launch as investors pile back in and Goldman Sachs raised its price target on the stock to $810.

 

Other tech stocks in focus are chip makers Intel and AMD, downgraded by Citigroup due to concerns about income growth in 2013.

 

Sportswear maker Nike has also fallen heavily after also being downgraded.

 

Expectations that he Fed will announce some form of open-ended QE have sent the Japanese yen to 6 month highs against the U.S. dollar today, which will no doubt place greater emphasis on the Bank of Japan to institute measures to counter the U.S. dollar's decline in order to protect their exporters from rising costs caused by a strong yen.

 

Short term Spanish bond yields have started to creep back up again as Spanish PM Rajoy prevaricates about the need to ask for a sovereign bailout. Ratings agency Fitch also put Catalonia on ratings watch negative over concerns about its funding needs, and this rise in yields has tempered euro gains. Reports that Catalonia has demanded fiscal independence from Spain haven't helped either, so much for European harmony. On a more positive note Italy was able to get a way €6.5bn worth of bond sales, with yields hitting a two year low on the three year.

 

Gold prices have stayed relatively well underpinned on QE expectations, as well as the geopolitical risks from striking miners in South Africa, where there is speculation that the whole sector could be shut down as unrest spreads. This has also helped underpin Platinum prices.

 

Crude oil prices continue to remain well supported on concerns about unrest in the middle east as well as the increased speculation about open ended QE ahead of this evenings Fed meeting