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Daily Market Report 08/12/2011

Asian shares slipped on Thursday on worries about European policy maker’s ability to agree on a plan that will resolve the debt crisis at the summit on Friday. European stocks opened higher as investors are prepared for a bold plan form the European leaders. With the FTSE 100 at 5580 at the time of writing the next targets over the near term for the bulls are 5650 and 5720. Crude prices inched lower after the US Department of Energy reported an unexpected rise of 1.33 million barrels last week. The yellow metal edged lower as concerns set in ahead of the high-stake summit. Gold is trading down at 1738 this morning after two consecutive sessions of small gains. As with crude oil the EU summit will be in focus for gold prices too.
Risk aversion seems to be prevailing with investors turning cautious and leaving riskier assets such as commodities and emerging currencies subdued. The markets have been pretty slow and listless for the week but as we are approaching the promising final 48 hours of the trading week activity in the markets is expected to pick up. However the question is whether this activity will be translated into a trend.
Looking ahead all eyes are on Europe. Today Sarkozy and Merkel are meeting European leaders in an attempt to win backing for their crisis plan, which aims to amend the EU’s Lisbon treaty to toughen budget discipline, at a congress of the conservative European People’s Party in Marseille.
On the data front, market participants are focused on some central bank event risk ahead of Friday, with both the Bank of England and European Central Bank policy decisions due today. The BoE rate decision is expected to remain unchanged, meaning that investors will have to wait for the MPC minutes to update expectations. While no change is expected from the Bank of England, investors still look for a dovish line from the central bank given the deepening global crisis and softer local economic data. Analysts expect from the European Central Bank to make a move. The ECB is likely to cut rates for the second in a row time by 25 basis points. Investors will also be on the lookout for any additional alternative forms of accommodative monetary policy measures taken by the ECB ahead of Friday’s critical Summit. It is not clear whether the rate cut will prove supportive or detrimental for the single currency, as on the one hand it is helping reduce the crisis but on the other it is reducing its yield-seeking appeal. In any case the markets are expected to offer muted reaction until the EU summit results are delivered.

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