There has been a bit of a divide on the future of Greece, and especially in the House of Commons.
Some MPs have suggested to simply let Greece go bankrupt, whilst others say that this could be catastrophic, but at the same time, David Cameron has said Britain will not pay any more than already pledged under the IMF. The difference between the US allowing the collapse of Lehmans and the situation in Greece is the key. European Commission President Barroso has stated that there is no way they will let Greece go bankrupt, which will come as music to the ears of the Greeks. We won’t know too much more on the intricacies of the deal until July, which is keeping traders on their toes for now.
In news around the world, the Reserve Bank of Australia will decide on whether to increase rates after assessing the euro zone debt situation against growth and inflation forecasts. Japanese export figures disappointed yesterday, as they showed an increase of 2.5 percent against April, but it was still less than expected. China’s house prices fell in May against April as the government attempts to avoid a property bubble.
The FTSE 100 took a hit and banks and commodity stocks were the casualties, as the uncertain situation in Greece encouraged investors out of riskier equity assets. The main index was down 21 points to 5693, and the problem is until we know exactly what the deal will be with Greece, we could expect to see the market bounce around over the short term. In the US we have existing home sales data at 2pm and the FOMC meeting at 4pm, so we could see a bit of movement after the data release today.
Investors pushed gold slightly higher yesterday, as caution over debt engulfed Greece and danger of contagion sent them into the precious metal. At one end of the spectrum, uncertainty over the second bailout plan has kept gold afloat in recent trading sessions, with EU officials asking Greece yesterday to sharpen up their act and come up with some austerity measures before they can receive their second tranche of the multi billion bailout. At the other end, a default could spark widespread liquidation, with profits from the yellow brick used to cover margin calls elsewhere. With these different factors in play, and a tense trading environment, gold finished the trading day up 2 bucks at 1539. The bullish long term trend does still seem to be giving investors hope, with the short and medium term trends staying sideways.
Much like its fellow precious metal, silver had a quiet session, still locked within the 34.40 – 36.30 trading range. Investors were persistent in their trading, refusing to take advantage of the Greek, and by extension, European turmoil, helping the precious metal to edge up 10 cents to 35.90 after they seemed to prefer to wait and observe from the side lines, as opposed to going in all guns blazing. It only backs up that the recent correction from the highs of 49.83 is still on their mind.
The Greek Prime Minister George Papandreou is facing a vote of confidence later today, a hurdle he has to clear to win backing for a new round of spending cuts, tax hikes and a state asset boot sale, all in order for Greece to secure the next 12 billion bailout tranche. Nonetheless, as if they wanted to ease pressure after the Greek woes instated fear, the European leaders also increased the European Financial Stability Fund to 440 billion, sending a cloud of calm back into the markets and igniting a rebound into positive territory for the euro which closed 78 pips up at 1.4362.
The ripples of the devastating Japan earthquake and tsunami back in March are still effecting the country it seems, with yesterday's report of a significant drop in the country’s exports for last month not helping the yen as it moved slightly lower versus the US dollar. The fact that it is already the most indebted nation in the world as a percentage of the GDP (over 200%) is not making it easy for the Far East nation to recoup the damage. Overall, the yen lost 11 ticks to 80.20, but one thing it does not seem to have lost is its safety haven currency status in the current climate.
This comment is from Capital Spreads.
We do not endorse the information and analysis available in this comment and it is provided purely for information purposes only and is delivered as a personal view by the writer. Under no circumstances is the information in this comment to be used or considered as an offer to sell, or a solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such. The investments referred to herein may not be suitable investments for all persons accessing this page. You should carefully consider whether all or any of these are suitable investments for you and if in any doubt consult an independent adviser. We accept no liability whatsoever for any direct or consequential loss arising from use of the information on this web page. Please see our Terms and Conditions.
