Daily Market Report 26/01/2012
In Europe the drama continues, with the IMF trying to put pressure on the ECB and Germany unwilling to double the rescue fund. Truth to be told, nothing has been solved in Greece. Until Greece is fixed or defaults, the markets are likely to remain depressive. The current situation however helps to shift some risk out of the banking system by putting it directly on the EFSF guarantors. The German borrowing costs fell to a euro-area record low at a debt auction yesterday, while the worries connected with lack of progress in Greek debt deal talks caused the Portuguese insurance costs to surge to record highs. At 5742 this morning the FTSE 100 remains in undecided territory which is where it has been for the past few days.
The US Dollar went down 0.55% against its leading counterparts yesterday following the FOMC rate decision, with the central bank vowing to keep interest rates at record lows through 2014 as unemployment remains stubbornly high and a depressed housing sector continues to threaten the recovery. The EUR/USD recaptured the 1.3100 level, not seen for six weeks. The sterling extended its rally versus the greenback for an eighth consecutive day and exceeded the early January high. If the bulls don’t manage to push the cable above this level, we could see a reaction lower into 15600/30 support.
Gold hit a six week high and even got to as high as 1715 before rejecting these dizzy heights and heading back to 1705 on the back of the dollar weakness after the Fed promised to keep rock-bottom rates for at least two more years. As with gold, oil prices extended gains on hopes of demand growth revival with Brent crude rising above $110 this morning. The oil market is supported because of concerns about Iran, but the uncertainty over Europe is making it difficult for oil to exit its current trading range.
The European economic data schedule is thin on the ground today, whereas a swathe of data are coming out form the other side of the Atlantic, with jobless claims and new home sales among the most notable. Developments out of the Davos World Economic Forum and any news of a Greek PSI deal come back into focus today. Should we see an agreement reached which would prevent a Greece default, we could once again see a Euro push higher.