As we approach the EU summit which commences tomorrow expectations are just starting to build regarding at least something new to help calm the markets.
The FTSE and other European indices have seen a lacklustre performance to say the least in the run up to the meeting as Germany continues to refuse to offer up its financial might as a back stop to save the euro once and for all. For the German Chancellor to say “not in my lifetime” sets a clear precedent and makes it once again impossible to see that the markets will get what they want.
So why aren’t markets selling off more and pricing in this inevitability? Sometimes investors wait for the horse to bolt and in this instance it really is anyone’s guess as to what will be agreed. Bulls are unwilling to give up long positions and don’t want to miss out on any potential upside if expectations are exceeded. Bears don’t want to bet on something that seems too obvious to be true so we sit in a narrow range as we did do yesterday with a bias to the upside this morning.
It looks like opportunistic bulls that are bidding the FTSE and other European indices higher at the open as no matter what the outcome of the EU summit, there will at least be some sort of action taken. It might come in the form of some sort of agreement on debt issuance, so some new treasuries perhaps. This way Merkel can tell her voters that it’s not a Eurobond backed by them whilst at the same time giving investors something to chew on and this might be enough to improve sentiment. But where there really needs to be change, which is something that financial markets have been crying out for ages, is the ECB’s remit. This of course will mean substantial treaty changes which we are not going to see in the next couple of days and so even though markets might be a little more optimistic this morning, we’re most likely to see a few more sticky plasters put over the wounds.
The FTSE as mentioned is a little brighter on the open, up some 20 points to 5466. Very near term resistance is seen around 5515 but then more significant is 5600. Clients are a little split over what they believe will happen to these European markets with clients largely sellers of the FTSE and buyers of the Dax.
Economic data is thin on the ground again today with US figures later today in the form of durable goods and pending home sales something to focus on.
Despite reaching lower against the greenback during the morning session to 1.2438, the euro found strength to recover, ending just 10 pips in the red at 1.2491. It seems all those downgrades for the Spanish banks along with Germany’s continued refusal to accept a European common front have been largely priced in. Or maybe investors are pondering the significance of the EU summit, not feeling confident to commit too much just yet. So far this morning the euro has not joined in the risk on trade as EUR/USD languishes just below 1.2500 at 1.2490.
Doubts the upcoming EU summit will bring any significant developments on the European debt picture pushed gold prices 14 bucks lower to 1571. The trading session was a rather quiet one, mirroring the same waiting game seen in equities or the US dollar. This morning the precious metal is at 1569.
A surprisingly better than estimated report on the US housing supported the WTI crude prices yesterday which ended 13 cents up at $79.36. However, Brent might have been the driver in the energy complex (it finished $2 higher) on the back of a strike in Norway by the oil workers. At the same time concerns about crude supplies made headlines as the embargo on Iranian oil comes into effect this Sunday.