Greece and Spain Spell Disaster for Metals and Gold
Early Monday morning in Asian trading base metals are trading down by 0.3 to 1.1 percent at LME electronic platform. Equities have also retreated by 0.9 to 2 percent indicating the weakness among riskier assets in the day ahead. Post slight optimistic economic releases the markets have again turned back to the European sovereign debt crisis with Greece and Spain taking the centre-stage.
Base metals might remain firm as investors looked for bargains after the metal fell its most in a month the session before on fears Spain would need a full sovereign bailout. Riskier assets, including base metals and equities, tumbled last Friday on news Valencia needed financial aid, complicating Spain’s efforts to stave off a full-blown sovereign bailout.
Further, the troika is going to meet tomorrow on a review discussion regarding whether Greece has done enough austerity to control the spiraling debt worm and may further weaken base metals in todayís session. Fundamentally, the cancelled warrants have declined indicating weak downstream demand and inventories have also stockpiled and may further support downside.
From the economic data front, the Chicago National Activity index is likely to remain weak after slower manufacturing and industrial activity and may continue to weaken base metals. While the Euro-zone consumer confidence may further dwindle due to rising Greece and Spain concerns and may continue to weaken the shared currency of the block.
The EUR/USD is presently down by 0.36 percent against the greenback and may further weaken base metals in todayís session. Therefore, with rising concerns of the two and a half year old European crisis, riskier assets including base metals might have a dim outlook similar to past and remaining on the selling side might be recommended. Markets may eye the weak Euro, the meeting of the troika tomorrow coupled with dwindling equities is likely to weaken base metals in today’s session, and hence initiating fresh short positions might be recommended for the day. Further weak economic releases and lower demand for base metals may continue to support downside in today’s session.
Gold prices eased at the early trading amid renewed European concern for staving off the crisis after Valencia appealed for an international bailout while Spanish bond yield recorded a new Euro area high of 7.30%. Euro made fresh yearly low against the dollar in early morning and thereby putting pressure on gold.
Moving forward, the crisis stem is likely to reinforce Spain asking for financial aid while the Valencia pursuit for the same had a bang on regional stock index on Friday. We therefore expect euro along with gold to remain under severe strain for the day. As an add on to the European discomfort, the IMF may cut off Greece aid while EU and ECB bureaucrats back to Athens for determining funds release from the agreed 130billion Euro bailout package. Moreover, ECB stopped accepting bond collaterals of Greece from July 25. The call of Troika will therefore be exposing the market anxiety amid intensified fear of default, raising the specter of a Euro-exit. The euro therefore seems to be vulnerable at this point.
With a rather thin economic release calendar today, the Eurozone consumer confidence is expected to drop further which may again put pressure on the shared currency.
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