With the US markets closed for President’s Day yesterday volumes were thinner than normal as there’s been little follow through from the Asian session this morning.
The FTSE is actually suffering a little bit of early weakness down some 20 points as investors make use of the old adage buy the rumour (bailout of Greece imminent) and sell the fact (actual bailout finally agreed). This is welcome on many fronts in that firstly the market can put this issue to bed for now and secondly we can talk about other things apart from Greece! I have a nasty feeling though that since a deal with the private bond holders is still yet to be agreed and the fact that there are fears any new government in April will simply not impose the austerity, we maybe talking more about Greece sooner than we had hoped.
As mentioned the FTSE is taking a bit of a breather this morning and understandably so considering the rally we’ve had so far this year. There’s no doubt that 2012 has got off to a decent start for equity investors and the European situation just seems to be improving. Italian and Spanish ten year government bond yields are way lower than a couple of months ago at 5.40% and 5.07% respectively, a much more comfortable level for investors. Greece has its bailout and there’s a feeling that even if the Greece problem does return by that stage Europe’s debt problems will be greatly eased and contagion to the likes of Portugal, Ireland, Spain and Italy less of a possibility.
It will be interesting to see how the US markets react when they get to work this morning following their bank holiday. We are calling the Dow to open some 55 points higher over the 13,000 level and a new high since May 2008. US investors might feel this is a little exuberant and bring their futures back down or they might think let’s crack on higher as this rally continues. There’s still a feeling that at some point a sharper move to the downside is required in order to pre-empt the next step higher in this rally, but the grind higher looks to still have quite a bit of momentum behind it.
Economic data is thin on the ground today with UK Public Sector Net Borrowing released this morning. This is expected to show a surplus in government receipts with the help of January being a strong month for tax returns with lots of people doing their self assessments and a usual boost from quarterly corporate tax receipts. Today’s numbers should be welcome news to the Chancellor showing his fiscal targets are on track.
With Greece managing to avoid a default as the EU agreed their next bailout this allowed the euro to enjoy a nice move higher of over 100 pips against the dollar. The single currency also reached a three-month high against the yen, at levels not seen since mid-November, further pushing out the demand for safe haven currencies. This morning EUR/USD is trading at 1.3250 and could see its fourth consecutive positive day on the back of the recent fundamentals.
Gold also benefited from the bailout deal allowing the yellow brick to post a gain of 10.7 bucks to close the day at 1733.5, also helped by traders dumping safer assets such as the US dollar. Another factor in the rally came from investors using the precious metal as a hedge against inflation as China refocused on its economic growth policy, which bears the risk of allowing inflation to make a comeback. Currently, gold is continuing its gain and is trading up at 1740.0.
Black gold had a quiet trading session with the US markets closed due to President’s Day. Crude prices had a small rally on the back of hopes that a decision in Brussels over Greece’s future isn’t far off and also a confirmation from Iran that oil exports to the UK and France will be stopped raising concerns of further supply disruptions. At time of writing, Brent crude trades at 119.87.
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