Daily Market Report 09/12/2011
European stocks slid on Thursday to a one-week closing low after ECB President Draghi gave no indication the European Central Bank would step up purchases of government bonds and that it would act as a lender of last resort to fund governments, triggering a massive bout of risk liquidation. The fall came despite the bank announced it would offer further liquidity measures and after cutting its benchmark interest rate to 1%. The ECB’s reticence to help the Euro Zone pushes the ball back into the EU officials’ court. European leaders agreed to adopt a Franco-German plan for greater fiscal unity within the euro-zone after a ten hour marathon meeting. A treaty change was dropped due to British opposition as France and Germany refused to grant the concessions sought by David Cameron. The FTSE 100 gave up the gains from previous sessions closing down 117 points at 5.454 on Thursday. London’s blue chip shares are trading up at 5478 this morning, showing that investors are happy to brush aside the lack of political consensus and are confident about today’s outcome.
In the FX markets, we finally saw a trading day with a clear direction. The EUR/USD pair came under heavy pressure, with the euro falling 0.5% against the dollar, as euro traders were disappointed by the ECB announcement and will look for compensation from the EU summit. Surprisingly enough the single currency was not the hardest hit of the major currencies on the day, with the commodity bloc underperforming, as these economies are very much exposed to the threat of a global contagion.
In the energy market, brent crude fell below $108 on growing worries that the European policy makers will fail to deliver a concrete plan today, which is likely to hurt prospects for demand. For the week London Brent Crude and US light sweet crude are poised for a fall of 2.9% reversing last week’s gains.
Today all eyes will remain fixed to the EU summit. UK is expected to shoot down any EU-wide fixes that involve financial tax. After the failure to secure backing from all 27 countries to change the EU treaty yesterday, any deal is likely to involve the 17 euro zone countries. EU leaders are committed to a new “fiscal compact” for the euro zone, including much tighter control of public finances and, in the longer term, could consider joint debt issuance but the main question today will be how much of it Germany is willing to accept, as key elements of the deal have been immediately rejected. However with Moody’s downgrading three French Banks it is becoming apparent that the EU has run out of time.
On the data front, the US is releasing the trade balance figures for October at 13:30 GMT, which could have narrowed slightly to $13.0 billion from $13.1 billion and will end the week with the University of Michigan Confidence figure for December in a preliminary reading, where the confidence is expected higher at 65.5 compared with the prior of 64.1.