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Daily Market Report 08/02/2012

European Shares
After missing a string of deadlines Greece is expected to grind towards a deal on the much awaited rescue package today. It looks like it is decision time for the debt-stricken country as, if this discussion is moved once again, it will conflict with the EU ministers planned for Thursday. The situation now makes an exit a plausible outcome as all the debt would be wiped off and the local currency would plummet and be massively devaluated assisting in the country becoming competitive again. Considering that Greece’s total government debt is estimated around €300-€350 billion and that the EU banks borrowed close to €500 billion through the ECB LTRO in December, no bank is likely to fail even if a default transpires. If the spotlight however shifts from Greece, the dismal outlook for growth in the Eurozone will come into light again. European stocks are pointing firmly higher, hinting more of the same is ahead. The FTSE 100 is trading in undecided territory in the past three sessions around the 5.9000 level.
FX
Surprisingly enough, the Euro was the best performer in the currency market yesterday. The bulls have dragged the euro back above the 1.3200 level against the greenback and they seem to have the wind behind their backs despite the lack of any Euro-specific developments. As with the single currency, the cable surged higher on Tuesday reviving the bull trend that began in mid-January. However after the 10 year Gilt yield surged to nudge a two-month high yesterday, there are choppy waters ahead for the sterling. At 1.5922 this morning key support and resistance levels to watch are 1.5277and 1.6000 respectively.
Commodities
Gold is holding steady around 1.7450 this morning as investors are cautiously waiting for Greece to strike a deal on a rescue package. A potential agreement on a rescue package for the debt-stricken country could hurt the appeal of the safety linked precious metal and send it plummeting below 1.7000. Oil prices continue to be well supported by the geopolitical tensions between Iran and the West with brent crude reaching as high as 11.45 in yesterday’s session before retracing to 16.06. At time of writing, Brent is up on the day at 111.48.
Today’s Calendar
The economic docket today is fairly light with the weekly inventory report from across the Atlantic being the most notable. The BoE kicks off its two day policy meeting today and although rates are expected to remain unchanged, there is general consensus that the central bank will announce expansion of its asset purchase target by £50B to £325B in total.

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