Market Comment 19th June 2012

At least whilst investors remain unconvinced that an end to the eurozone crisis is in sight we can rely on the G20 summit in Mexico to come up with all the answers to our problems.  

This of course would be wishful thinking but at least politicians now seem to be waking up to the fact that unless the issue is addressed properly then the western world is in for a sluggish few years of growth ahead and possibly the beginning of the end of its dominance as the drivers of global demand.

This time though there has been a little bit of preparatory work ahead of this G20.  Of course the focus is around growth and the stability of the euro and since this had been agreed by everyone in the run up to this meeting at least more time will be spent on discussing how to go about it.  But as has been the case so many times in the past anything meaningful coming out of these summits apart from the usual back slapping and photographs is rare.

The optimism regarding the result of the election in Greece, where pro Europeans won a small victory, tempered some of the concerns but proved to be short lived.  With global markets unconvinced about a fundamental change in the European debt picture, the Dow Jones retraced 25 points to 12,741 especially when Spain’s borrowing costs surged to record levels.  Spain will once again be in the spotlight as they go to the bond markets twice this week, once today and again on Thursday, so investors will be keen to see just how much the market is going to demand in return for borrowing the cash.

The FTSE is in a positive mood so far today as a bit of optimism surrounding the G20 seems to be creeping into the markets, and ever since the Greek election markets have remained quite volatile but at the same time the bias has not been to the downside, rather indices remain well supported.  Clients had been creeping into buy the FTSE following Monday’s reversal and so are sitting pretty at the moment. The London index is at 5530 at the time of writing with the bulls just in control.  Despite the turmoil in recent weeks the FTSE is actually some 3.5% higher so far in June so it will be interesting to see if the low around 5320 is set in stone for the time being.  To the upside 5570 and 5610 are seen as resistance levels in the near term.

The pro bailout New Democracy party in Greece won the confidence vote by a narrow margin and the initial reaction pushed the shared currency higher versus the dollar.  However, investors reconsidered their position shortly after as forming a coalition government could prove a tricky one.  In addition, the yields on Spain’s debt reached a euro era record, climbing above 7% which sent the common currency tumbling 136 pips down for the day to 1.2575.  At the time of writing EUR/USD is hovering around 1.2600.

We saw gold prices plunging during the opening session as investors moved into risky assets buoyed by a sigh of relief concerning the Greek vote.  But that did not last long as uncertainty regarding the rest of the struggling euro zone members brought buyers back into the market.  So gold prices pared their initial losses closing rather flat at $1627.55 and could stay supported ahead of the Fed meeting, due later this week.

The feel good factor in the world markets after it appeared the Greeks chose to stay in the EU allowed WTI crude prices to open higher. Nonetheless, fears that the demand for oil will suffer as borrowing costs for Europeans continue to rise took their toll and reversed the uptrend.  Consequently the WTI prices ended the session $1.82 down at $83.27.
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Market Comment 19th June 2012

At least whilst investors remain unconvinced that an end to the eurozone crisis is in sight we can rely on the G20 summit in Mexico to come up with all the answers to our problems. 

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