Market Review May 16 2012
Markets traded with a negative bias again, with equities falling, the USD rallying, and commodities selling off. Bonds were fairly flat after yesterday’s rally.
The Greek political parties have failed to form a coalition government and it seems as though another election may well be in the offing, with June 17th being bandied about as a possible date. Other headlines today included that Greece agreed to pay a bond maturing today (though the payment will probably not happen until tomorrow, though Greece’s raising €1.3bn in the T-Bills market this morning is a sign that it intends to have the cash on hand to pay).
Would an election change the political configuration?
The FT reports that 20% of Greeks would support the Syriza party (which rejects Greece’s current agreements with the E.U. and the IMF and has promised to reduce unemployment by hiring 100,000 additional civil servants) as compared to 16% who supported Syriza in the recent elections. At the same time, more than 54% of Greeks support the agreements and wish to remain part of the euro zone.
Economic data released in the US today were decidedly mixed. On the one hand, the Empire Manufacturing Index (admittedly not the most closely watched or most accurate gage of US output) posted a very strong number in April (17 vs. 6.5 in March). On the other hand, retail sales were soft at 0.1% m/m and CPI was fairly calm at 0.2% m/m. While the retail sales number seemed soft.
Euro Dollar
EURUSD (1.2852) EUR has found near term support following the release of stronger than expected GDP data, despite Italian financial sector credit downgrades and a weak ZEW sentiment print for both Germany and the EU. Germany’s output rose 0.5% q/q, while France and the EU remained flat at 0.0% q/q, widening the divergence in the growth trajectory of output.
Policymakers in Europe remain concerned about Greece in the near term; however the payment of today’s maturity should provide some reassurance to financial markets. In the medium term, politicians will continue to seek ways in which they can foster growth to mitigate the challenges posed by record unemployment. Today’s dialogue between Merkel and Hollande could allow for a shift in tone and provide for more of an emphasis on growth.
However, any weakening in fiscal discipline would prove challenging given the rally in bond yields since Spain’s announcement of weakened fiscal targets in early March.
The Sterling Pound
GBPUSD (1.5969) Sterling fell to its lowest in more than three weeks against the dollar on Tuesday as it corrected some of its recent sharp gains against the euro following earlier better-than-expected German gross domestic product data.
Sterling fell 0.3 percent on the day to $1.6040, with traders saying stop loss sell orders were triggered on the break below $1.6050-60. More stops were expected below $1.6040, though bids were expected towards $1.6000, they said.
The falls came as the euro broke back above 80 pence, recovering from a 3-1/2 year low of 79.635 hit on Monday
Asian –Pacific Currency
USDJPY (79.81) With the appetite for risk dampened, investors kept piling into assets deemed as safe, pushing the dollar index – a gauge of its performance against major currencies – to a four-month high of 81.34. This helped the greenback perform well against the yen, driving it to a two-week high of 80.45, roughly one yen above the 2-1/2 month nadir of 79.428 yen hit last week.
Gold
Gold (1533.45) slumped for a third session, again tracking the euro lower against the dollar on worries that Europe’s debt crisis could be set to worsen because of political gridlock in Greece.
On Tuesday, the most-actively traded contract, for June delivery, settled down $3.90, or 0.3 per cent, at $1,557.10 a troy ounce on the Comex division of the New York Mercantile Exchange, the lowest settlement since December 29. Gold continued to fall overnight in electronic trading.
Crude Oil
Crude Oil (93.98) prices have closed the day mixed as dealers balanced better-than-expected euro zone economic growth figures with rising concerns over Greece. New York’s main contract West Texas Intermediate crude for June on Tuesday closed at $93.98 a barrel, down 80 cents from Monday.
In London trade, Brent North Sea crude for delivery in June rose 67 cents to settle at $112.24 a barrel.
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