Daily Market Report 12/12/2011
On Monday markets continue to digest the results from Friday’s agreement between the EU nations, that paves the way for closer economic ties needed to prevent future debt crisis. With an overwhelming majority of countries led by Germany and France to forge ahead with a separate treaty, the UK rejected the proposed EU treaty amendments after failing to secure concessions. Britain and Sweden, which walked away from the 27 EU summit on worries over sovereignty and competitiveness, are joined by the US, that is not willing to contribute to the funding for the IMF. Apart from Britain, all EU countries are ready to join the 17 members of the euro zone. The outcome has left financial markets uncertain as to whether and when more decisive action will be taken to stem the debt crisis that began in Greece, spread to Portugal, Ireland, Italy and Spain and now threatens France and even economic powerhouse Germany. A new treaty would take months to negotiate and may require referendums in some countries.
European stocks ended higher on Friday recouping back most of their losses in the previous sessions. In the US shares logged second week of gains after the EU deal buoyed by a strong consumer sentiment report. Asian stocks gained on Monday as investors felt encouraged to take on more risk. Today European shares were seen retreating as the euphoria over the EU deal started fading, with banks among the top decliners. The FTSE opened down 30 points at 5,517 with much of the fall due to weakness of mining stocks. There is a lot of near term support seen at 5343/5114 and to the upside resistance is seen at 5,619, Wednesday’s high.
In the FX market, the single currency remains the focus of the world’s attention. The Euro opened lower against the greenback on Monday, as euro traders were left somewhat confused by the implications of the efforts announced on Friday. The EUR/USD is trading at 1.3387 at the time of writing. The 1.30 area is massively supportive and will be a tough one to break down. On the upside resistance is seen at around 1.40 levels.
In the commodity markets gold prices fell more than 1% to a two week low in early trading with the US gold futures dropping as much as 1.7% to $1,688 an ounce. It looks like a technical selling as the bulls had raised their bets in the precious metal, with the price of bullion reaching over $1,760 an ounce in the past week. Brent crude slipped on Monday over scepticism about the EU agreement, but holds steady around $108 on hopes of steady demand growth as China’s oil import surged.
On the data front, the UK economic docket is thin on the ground. Investors will be watching David Cameron’s statement following the EU summit. Italy, France and the Netherlands are holding bond auctions on Monday, with Italy expected to auction off 7 billion Euros of 12 month bills at 10:00 am GMT. The US start the week at 19:00 GMT with the monthly budget statement for November.