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Daily Market Report 21/12/2011

European Shares
Signs of relief are to be seen in the markets since yesterday with the bulls taking the control following uplifting confidence data and a successful Spanish auction that saw Spanish borrowing costs falling sharply on Tuesday. This morning stocks in Europe jumped higher, with banks and resource stocks leading the gains, after a robust Asian session buoyed by positive economic data from the US and Germany, raising hopes to the investors that the Christmas rally could finally get underway. Despite Moody’s warning that the deepening crisis in the euro zone endangers Britain’s triple-A rating, the FTSE 100 opened higher today carrying on from the prior day’s rally. This morning’s strength however appears to be losing its momentum, with the UK benchmark index trading down at 5.443 at the time of writing.
FX Market
The Euro has been working its way up since Tuesday supported by an unexpectedly strong German Ifo index that showed a sharp rise in German corporate sentiment, emphasizing the resilience of Europe’s largest economy in the midst of the sovereign debt crisis. The single currency is trading up at 1.3153 and is likely to log further gains today, should the demand at the ECB tender be high. We can expect next target to be around 1.3383-1.3360 area. Alternatively, if the price drops below 1.3100, the next support area is the psychologically important 1.300 level.
Commodity Market
Gold suffered its fair share of weakness last week but it looks like the bears have pretty much given up on the precious metal. Gold edged higher to a one-week high this morning, extending the gains from the previous session, after positive economic data from the US and Germany boosted market sentiment. The yellow brick is trading at $1633 this morning. A successful ECB tender could boost gold prices further. Brent crude is gaining for a third day in a row after upbeat US data indicated a recovery in demand growth in the world’s biggest oil consumer, with the black gold trading above $107 this morning.
Today’s Calendar
All eyes will be fixed on the ECB tender today offering 3 year loans to troubled European banks for the first time in history. Analysts expect a strong demand after ECB President Draghi encouraged the banks to take central banks provision last week. A soft uptake could produce further downward pressure on the single currency. On the economic front, the minutes from December’s BoE policy meeting will be closely watched today. Investors will be looking for signs of another quantitative easing. Significant changes to the outlook are unlikely this time, with policymakers voting once again unanimously to maintain the benchmark interest rate and asset purchase target unchanged.

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