Daily Market Report 13/12/2011
Investors continue to be unconvinced by the plan delivered on Friday with European shares shrugging off any progress made by EU leaders. Today European stocks opened flat after a disappointing overnight Asian session on worries of a mass credit downgrade triggered by Moody’s move to place eight Spanish banks on review for potential downgrade late on Monday, that followed earlier warnings from Moody’s and Fitch Ratings on the credit worthiness of European countries. Citigroup added that the UK could lose the coveted AAA rating if recent fiscal consolidation measures failed. The Italian debt auction yesterday failed to inspire confidence, the 10 year bond pushed back above 6.5%. The FTSE 100 opened slightly higher at 5,442 but it is dubious whether investors will brush aside the comments from Citigroup. There is a lot of near term support levels seen at 5,343 and 5,116 and to the upside resistance is seen at 5,622, Wednesday’s high.
In the FX market, things look bleak for the single currency and risk correlated assets. The EUR/USD hit a two-month low on Monday. Although the bulls are pushing the pair higher this morning, all eyes are fixated on September’s lows around 1.3147. Should the pair close below that level, the Euro could gravitate back to the 1.200 levels with a next wave of currency depreciation looming.
In the commodity market, it looks like the precious metal has lost its safe haven status for a long time now as gold prices fell to a seven week low yesterday, extending a 2.6% decline in the previous session, as worries about the euro zone crisis continue to grip investors. Brent crude is trading steady around $107 today. Oil prices slightly declined during last week after they rose during November and October. Oil traders will be closely watching Wednesday’s OPEC meeting. The meeting is likely to affect oil especially if there will be breaking news on OPEC’s oil production. OPEC targeted a new 30-million barrel-a-day production deal aimed at healing the rift left by a failure to reach an output agreement when it last met in June.
In the European session investors will be looking at the UK CPI and the German ZEW. With the German ZEW forecast to register another drop with a reading -55.8 in December, compared to -55.2 in November, forex traders are likely to be looking for safer currencies. We could see further volatility as the UK CPI inflation data are due today. Rising by 5.2% in September UK inflationary pressures have started to subside to 5% in October and are expected to continue lower to 4.8% in November. Today’s key event however comes from the other side of the Atlantic in the form of the FOMC rate decision at 19.15 GMT. Although no change is expected to policy yet, investors will be on the outlook for more upbeat comments from the FED in regard to the improvement in data on the local front.