The markets have been snapping up risky assets in the last two days.
Stocks have reached new highs and the S&P is currently at its highest
level since September 2008, oil remains above $90 per barrel and the
Aussie dollar has breached parity once again with the US dollar. The
improvement in risk sentiment has also pushed the euro higher; EURUSD
is trading above 1.34 at 1.3450 after having briefly touched 1.3500 in
early trading during the European session. If the single currency can
breach 1.3500, it suggests further gains to the 1.40 level, the high
reached back in November.
The backdrop to this euro strength is the meetings of European
officials that concluded yesterday with the Eurozone finance
ministers' conference. Although there was a slight hope last week that
a solution to the sovereign debt crisis might be found at this week's
meetings they have ended with very little progress toward a credible
permanent solution. Germany said that there was no urgency to expand
the size and scope of the EFSF rescue fund, one of the measures touted
as necessary to calm markets. Likewise, the creation of a
Eurozone-wide bond probably didn't even make it on to the agenda. We
now have to wait until March before ministers will decide on the fate
of the EFSF fund, while the fresh round of European banking stress
tests are due to start in February, but the results won't be disclosed
until July. So the can gets kicked down the road yet again.
For now, investors are giving the euro-area the benefit of the doubt
and EURUSD is holding well above its perceived fair value of 1.20 per
US dollar, but this may not always be the case. There was a slight
wobble in the single currency this morning after reports surfaced that
Germany was taking matters into its own hands regarding the Greek debt
crisis and was helping the beleaguered nation restructure its debts
that would require it to buy back government bonds with funds from the
EFSF. These reports have been denied by German officials, but it is a
reminder to investors of the power Germany wields within the currency
bloc.
With talk of Greek debt restructurings and Irish political turmoil
dominating the headlines Germany's trail of strong economic data keeps
growing. Today the German economics ministry released its bi-annual
economic report, which predicts solid growth for the European export
powerhouse at 2.3 per cent in 2011, unemployment at 7 per cent and for
the budget deficit to narrow to 2.5 per cent of GDP by the end of this
year. So far a strong Germany is helping to propel the euro higher,
but it will be interesting to see how long this lasts, especially with
Portuguese government bond yields on the rise again; yields are
currently above the critical threshold of 7 per cent that could drive
Lisbon to the EU/IMF bailout fund.
Sterling has come under pressure since the release of employment data
for November earlier this morning. Even though the report was fairly
encouraging, GBPUSD has not managed to sustain gains above 1.6000, and
is currently trading at 1.5960/70. The UK unemployment rate held
steady at 7.9 per cent in November, but the number of people seeking
jobless benefits actually fell by 4,100. This was put down to hiring
by the manufacturing sector prior to the Christmas season, which has
picked up strongly. The lone dove on the Bank of England's Monetary
Policy Committee Adam Posen is speaking today. It will be interesting
to see if his stance to expand QE has changed after the mammoth print
for December CPI, which showed that prices rose by a 3.7 per cent
annualised pace. The pound is moving with risk, so any pullback in
risk could hurt sterling today.
Elsewhere, the dollar is under pressure contrasting with the rally in
risky assets. Tomorrow's economic data stateside, which includes
jobless claims and existing home sales, will determine the direction
of the greenback into the end of the week.
Yesterday's stellar 2010 earnings from Apple saw the stock shrug off
news that CEO Steve Jobs had taken indefinite leave, rising more than
5 per cent during the New York session. This helped push the Nasdaq to
fresh cyclical highs. Today's earnings highlights include a plethora
of US financial institutions including Goldman Sachs, Wells Fargo,
State Street and Bank of New York Mellon. After markets close eBay
announces its results. The financial sector makes up more than 16 per
cent of the S&P 500 so today's earnings releases could impact the US
blue chip index.
Also watch out for volatility in the Kiwi dollar later this evening.
The fourth quarter 2010 inflation print is expected to push the YoY
rate to 4.1 per cent from 1.5 per cent in the third quarter.
Source: ActionForex.Com
No comments:
Post a Comment