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Market Comment 19th Apr 2012

Spain remains the focus and an important bond auction for them today will be closely watched by investors. 

Earlier this week the country got away some much shorted dated debt which was well subscribed but today’s test is of much longer dated bonds including some ten year debt.  This will be a good indication of investors’ confidence in the country, and since the ECB hasn’t been particularly active in the markets since its LTRO program it will be interesting to see how things go without the deep pockets of the central bank wading in.  What bulls are really praying for is a successful auction which could alleviate some pressure off Spain.

There was lots of interesting data from the UK yesterday with a rare glimmer of light for the labour market which actually saw unemployment fall.  The problem though is that a lot of jobs are part-time with the number of people in part-time work rising to an all time high (or at least since records began back in the 1990s).  The number of full-time jobs actually fell which continues to show how fragile the labour market is and that whilst many firms are starting to hire again, it is not in any sort of fashion that you would expect in a normal recovery.

This sort of sentiment was reflected by the world’s largest money manager Blackrock who reported decent numbers but nothing that really set off any fireworks.  The highlights of their results were that they were seeing more investors willing to take on a bit more risk by moving into equities, but they were not seeing this in any way as much as they would have expected in the past when a recovery is under way.  So this just shows that investors and firms are not going all guns blazing at this stage of the economic cycle and caution remains the order of the day.

This is being reflected in the FTSE this morning which is creeping higher again, but has had a few sessions of indecision.  At the time of writing the index is at 5780 and has just been creating a little bit of an uptrend following the few weeks of declines.  The little bounce so far is almost looking like something that could turn into a more sustained recovery for equity markets, but the headwinds remain strong and a return to the year’s highs still seems a long way off.

A handful of U.S. economic data will provide a better picture for investor optimism with weekly jobless claims, existing home sales and the Philly Fed manufacturing survey due out later today.

Sterling had a strong day yesterday after the Bank of England minutes showed only one MPC member still supported quantitative easing as arch dove Adam Posen gave up his call for further monetary easing after being previously in favour of more stimulus. Cable dragged itself back above the 1.6000 mark and is at 1.6050 this morning, meanwhile against the euro it is just above 1.2200 at 1.2215.   Forecasts that inflation would be above target for far longer into the medium term shifted the tone of the minutes away from propping up growth to taming inflation.  This brought forward the expectations of the first rate hike, boosting the pound.

Gold prices trudged lower on Wednesday, hitting a low of $1637.8 an ounce on reports that Syria is selling its gold reserves at discount prices as financial sanctions imposed by the Arab League and Western nations begin to take effect.  A break of the Tuesday low at $1634 could see a sudden test of the near term support at $1611.8.

Brent crude futures continued their slide amid concern that Spain’s troubles will reignite the whole European debt crisis and curb demand for oil.  Brent has fallen from a March high of $128.57 a barrel as traders turn bearish on the prospects of further talks between six world powers and Iran, and a pipeline reversal in the United States easing demand, this morning it is at 118.60.

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Market Comment 19th Apr 2012

Spain remains the focus and an important bond auction for them today will be closely watched by investors. 

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