Market Review May 15 2012
The Euro currency is a malady that condemns at least a generation of Greeks, Italians, Spaniards, Portuguese and Irish to the economic infirmary. In these nations, unemployment rates are now at their highest levels in recent decades, and there are few prospects for recovery in sight.
USA
Car sales that are running at the fastest pace in four years are poised to reverberate through the world’s largest economy as a spillover into production, profits and jobs for Americans may be starting. Auto purchases have exceeded a 14 mn annual rate in each month this year, the strongest performance since early 2008.
Europe
European stocks fell as Greece moved closer to a possible exit from the euro currency union and German Chancellor Angela Merkel’s party lost a state election. Greece’s political deadlock looked set to continue for a second week as President Karolos Papoulias failed to secure agreement on a unity government and avert new elections. Syriza, the leftwing group opposed to spending cuts, defied overtures to join the government yesterday. Euro-area finance ministers may discuss the international bailout for Greece, as well as the situation in Spain, where the government last week made a fourth attempt to clean up the country’s banks.
Asia
China’s stocks fell to the lowest in three weeks after Citigroup Inc. and JPMorgan Chase & Co. cut their growth forecasts and investors speculated a cut in banks’ reserve ratios won’t be enough to stem an economic slowdown. China’s April retail sales rose 14.1% from a year earlier, lower than the 15.1% estimated and the 15.2% increase in March. Most Japanese stocks fell, with the Topix Index sliding for a fourth day, as European officials began to weigh Greece’s possible exit from the monetary union.
Euro Dollar
EURUSD (1.2852) The euro has fallen 0.4% vs the USD as a result of continued uncertainty in Greece with ongoing speculation about the implications of an exit from the Eurozone. Economic data have also highlighted economic challenges, with the release of industrial production figures that have shown unexpected weakness.
The EUR is trading at levels last seen in January, and expectations are for a continued downward trend. German state elections over the weekend saw voters shift leftward in the second consecutive state election, away from Merkel’s CDU party, a shift that underscores voter concerns amid the recent push for austerity. Germany’s Merkel will meet with France’s Hollande on Tuesday, and the two leaders of the Euro Area’s largest economies are expected to discuss the fiscal treaty. An emphasis on growth would be negative for EUR, and would require assistance from the ECB as politicians and policymakers sought to re‐invigorate the Euro Area’s economy.
The Sterling Pound
GBPUSD (1.6074) • Sterling is gained a bit and outperforming on the crosses. The current environment is conducive to GBP strength given that both safe haven and intra‐European diversification flows are likely to provide support amid continued uncertainty. The key near term driver for GBP remains BoE policy, given the recent shift away from a dovish stance, and this week’s quarterly inflation report will provide market participants with an updated view regarding the appropriate policy in an environment of tepid growth and persistent inflation
Asian –Pacific Currency
USDJPY (79.81) • JPY is flat vs the USD and gaining on the crosses as a result of safe haven flows. The recent strength has raised the ire of politicians at the MoF, who continue to voice their discomfort with the recent strengthening of the yen. Talk of intervention is a favored tactic of MoF officials, though action is not expected at this time. Finally, GDP data are set for release this week and should show that the economy returned to expansion in Q1 following the 0.5% contraction in Q4 2011
Gold
Gold (1561.00) slumped to a fresh low for 2012 on mounting concerns about the future of Europe’s currency union as Greece struggles to form a coalition government. The most-actively traded contract, for June delivery, fell $23.00, or 1.5 per cent, to settle at $1,561.00 a troy ounce on the Comex division of the New York Mercantile Exchange.
Crude Oil
Crude Oil (93.65) prices have slumped, with New York crude striking five-month lows, as the dollar strengthens against the euro on mounting worries over Europe’s debt crisis, traders say. New York’s main contract West Texas Intermediate crude for delivery in June is down $US1.52 at $US94.61 a barrel. Earlier on Monday it hit $US93.65 – the lowest point since mid-December.
Brent North Sea crude for June was down $US1.27 at $US110.99 a barrel in late London deals, having reached a near four-month low of $US110.04 earlier on Monday. A stronger US currency makes dollar-denominated oil more expensive for buyers using the euro, denting demand for crude.
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