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Market Comment 15th Nov 2011

Calls for greater integration within the EU are getting louder as politicians continue to dream of an ever more powerful central European state. 

There’s no question that more fiscal integration could have possibly averted the current crisis by preventing profligate states from going on their spending sprees whilst being able to borrow from the bond markets at the same rate as Germany, but the reputation of the eurozone project has been badly tarnished and whilst there might be appetite from politicians, there is growing scepticism from the voters.  Certainly in the UK, which has historically been one of the more sceptical nations proud to have the head of state on its own bank notes, the old cracks in the Conservative party have re-emerged and now the Labour party is making noises about reclaiming powers from Brussels.

The banging of the EU drums is a desperate attempt to prevent a break up of the eurozone which is looking increasingly likely as the crisis unfolds.  Calls for further integration will face stiff opposition and take years to implement even if the general consensus from European parliaments is in favour of such a move.

This morning the FTSE is just about holding up at around 5515.  All eyes remain on the government bond yields of Italy and Spain which have been creeping higher this morning, but at least there’s been some decent GDP data so far this morning from both France and Germany.  Things have been rather choppy so far this week and it seems as though there really is little buying appetite to really push things higher.

There’s more economic data to come with UK CPI inflation data and then the German ZEW survey.  Inflation is expected to dip back towards the 5.0% mark with many believing this will be the peak for rising prices.  This will be music to everyone’s ears who have suffered years of way above target inflation (apart from the blip down during the recession), but there’s still a very long way to go to get back towards the BOE’s target of 2%.

FX traders have continued their bearish stance on the euro as it is on the decline for a second day today.  Merkel’s comments that the eurozone is in the worst state since WWII come just in time for those German investor confidence figures mentioned later today, expected to show their lowest in three years.  Traders all over will be extremely cautious over the single currency, as it seems that despite a few governmental changes in the eurozone, sentiment hasn’t really appeared to pick up.  As said yesterday, we should still expect short term bearishness over the euro and strength in more safe havens currencies such as the dollar and yen.  The euro is trading down against the dollar this morning at 1.3600 with support at 1.545 and resistance at 1.3720.

Eurozone members that have been worst hit by the debt crisis were subject to a political reshuffle yesterday, sending worrying investors into the safety of the US dollar yesterday and in turn, out of gold.  Reports have stated that current trading volumes are minute and the only people left in the markets are short term speculators, with the long term holders taking a peripheral view for the time being.  So all in all, yesterday’s session saw the yellow brick lose 7.5 bucks to close at 1779.8, which at time of writing has been extended down to 1770.1.

Despite the changes in Greece and Italy’s political system, showing a want for reduction of the current deficits, crude oil pulled back from the recent highs as the bears took hold of the session yesterday. Not only the persistent concerns on the European debt crisis, but the strengthening greenback kept downward pressure on the price of black gold, which at time of writing has been eased as Brent trades up at 112.05.

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Market Comment 15th Nov 2011

Calls for greater integration within the EU are getting louder as politicians continue to dream of an ever more powerful central European state. 

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