Market Review May 17 2012
Following a positive start, U.S. stocks closed in the red for a fourth straight session on Wednesday, as investors weighed strong U.S. economic data against ongoing uncertainty about Greece’s political situation.
The Dow Jones industrial average fell 33 points, 0.3%, finishing at the lowest level since mid-January. The S&P 500 dropped 6 points, or 0.4%, and the Nasdaq lost 20 points, or 0.7%. Both indexes closed at the lowest level since early February. After politicians in Athens failed to agree on a coalition government, President Karolos Papoulias called for all parties to set up a caretaker government that will conduct new elections next month.
Housing starts jumped to an annual rate of 717,000 in April, from the revised level of 699,000 in March. Meanwhile, building permits fell to an annual rate of 715,000 in April, from the revised figure of 769,000 in March. Analysts expected permits to fall to 730,000. The Fed’s reading on the nation’s factory output was also better than expected.
Industrial production rose 1.1% in April, rising at the fastest pace since December 2010. European stocks closed mixed. Britain’s FTSE 100 rose 0.1% and France’s CAC 40 added 0.3%, while the DAX in Germany slipped 0.3%.
Despite the uncertainty, comments from European leaders helped stem some pressure. German Chancellor Angela Merkel reiterated that her country wants Greece to remain in the eurozone and will make every effort to help the nation get on solid footing. She said she agreed with France’s newly elected president Francois Hollande to consider measures to spur growth in Greece.
Euro Dollar
EURUSD (1.2725) The euro is flat from yesterday’s close as it flirts with 1.2700 following yesterday’s considerable weakness that spilled into the Asian session. Weakness is driven by the question of Greece, as market participants fear the unknown outcomes of the political turmoil in the Euro area’s weakest member nation. CPI data have been released, showing that inflation in the euro area held flat at 2.6% y/y, with core at 1.6% y/y. Elevated inflation, above the ECB’s 2.0% target, limits the ability of policymakers to provide accommodation in challenging economic environments. The next ECB meeting on June 6th will see policymakers provide an update to their projections for inflation and growth, which could provide for clues regarding policy action
The Sterling Pound
GBPUSD (1.5940) Sterling is weaker, down 0.3% vs the USD and underperforming most of its peers following a sharp drop on the release of the BoE’s quarterly inflation report, where forecasts for growth were reduced and expectations for inflation were for a decline in CPI to below the 2.0% target over the next two years. The reaction suggests that market participants see a rising potential for accommodation as a result of a challenged economic environment, and as a result of downward pressure to inflation. Employment figures were released and surprised to the upside, with an unexpected drop in jobless claims along with better revisions to the previous month as well.
Asian –Pacific Currency
USDJPY (80.49) The JPY has fallen 0.4% from yesterday’s close despite the market’s risk off tone that would usually provide for strength resulting from safe haven flows. Machine orders data suggest weakness, and market participants are focused on the GDP data set for release following the close of the NA session at 7:50pm EST. Expectations are for a return to growth following the contraction in output seen in Q4.
Gold
Gold (1533.45) Gold prices fell for the third straight day to trade five weeks low sparked by a weakening trend in international markets. The gold in overseas region entered a so-called bear market, dropping for a fourth day, after Greek leaders failed to form a government, increasing speculation that the country may quit the euro zone and driving the Dollar to a record high.
The precious metal in Asia lost 0.7 per cent to USD 1,533 an ounce, more than 20 per cent below its all-time high last September, cheapest since December 29.
Crude Oil
Crude Oil (93.98) Oil prices dropped to fresh six-month lows near $92 a barrel Wednesday in Asia after a report showed U.S. crude supplies surged more than expected last week. Benchmark oil for June delivery was down $1.84 to $92.14 a barrel, the lowest since November, at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract fell 80 cents to settle at $93.98 in New York on Tuesday.
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