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Market Comment 25th July 2012

Markets continue to spiral as the prospect of a full blown Spanish sovereign bailout relentlessly rattles markets. 

The eurozone is slowly getting itself into a more and more perilous state simply because the markets do not see growth any time soon and the austerity measures being imposed are crippling and completely counterproductive. So much so that the sorts of austerity being imposed by the likes of Greece and Spain are far beyond what even the IMF itself recommends is the right sort of level that will at least have a chance to grow. But in the case of the PIIGS their recessions are due to become even more entrenched. Whilst their profligacy of the past needs to be amended surely it doesn’t take much to see that the proposed measures are having the adverse effect. As the economies continue to shrink investors will be more and more reluctant to lend driving their bond yields higher and higher as the vicious circle of the eurozone crisis carries along its path.

Yesterday’s troika visit to Greece hardly went swimmingly either and really was nothing more than an exercise that proved Greece has little chance of ever meeting its deficit reduction targets. Things have not been helped either by the ECB’s recent move to no longer accept Greek bonds as collateral thus putting further pressure on the country’s central bank. The markets have been clear that there was an exceptionally slim chance of the targets set ever being met and as each day passes those in the Grexit camp are increasing their chances that it will happen. It is only a matter of time for them.

All this is putting a dent in investor sentiment and things haven’t been helped either from the news across the pond that technology darling Apple have missed their earnings targets for the first time since 2003 on top of a string of disappointing results in the US which caused the Dow Jones to slip further into red for the third straight session. Speculation the Federal Reserve might act to boost economic growth allowed a late comeback but not enough to erase the early damage. Overall, the Dow Jones declined 100 points to close at 12,617.

This of course has had a knock effect for European trade this morning with the FTSE commencing the session in the red, down some 10 points to 5490, but much better than what we had been calling the index earlier. A highlight for today will be the UK GDP figures this morning which are expected show a decline of 0.2% confirming a triple digit recession. If you read back on this comment it’s not unreasonable to expect our economy to be suffering from the malaise of our biggest trading partners on the continent.

Investors are losing confidence in Greece meeting its debt targets and also fearing bailout for Spain. In addition, Germany was warned it might lose its much coveted triple A rating which put extra downside pressure on the euro. As a result it came as no surprise to see the shared currency losing another 54 pips to $1.2061, a new multi year low for closing price. This morning at least there’s a little bit of a squeeze on the bears at the moment and we’ve already seen the single currency get itself back above 1.2100 this morning.

It seems trading in gold has turned a bit boring as investors were largely undecided whether to buy the yellow metal awaiting currency depreciation from QE3 or sell it given a strengthening greenback. Yesterday, we saw a modest rise of $3.60 to $1580.2 but as mentioned in previous comments the sideways movement dominates the view. At the time of writing the bulls are attempting to push the yellow brick higher as it trades at 1586.

Following two days of heavy losses, bargain hunters made a cautious approach pushing the WTI crude prices 45 cents higher to $88.50. Some extra help for the buyers might have come from news that manufacturing in China remains resilient. However, with the euro in free fall against the greenback it could be a real struggle for investors to stay optimistic about crude prices. 

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Market Comment 25th July 2012

Markets continue to spiral as the prospect of a full blown Spanish sovereign bailout relentlessly rattles markets. 

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