Daily Market Review 24/11/2011
Asian stocks were subdued on Thursday on realised fears that the euro zone contagion has reached Germany, the economic powerhouse of Europe and key to the survival of the single currency. The German bond auction only managed to attract two thirds of the amount targeted. Bunds slumped after the auction. Ten-year yields rose 14.5 basis points to about 2%, yielding more than U.S. Treasury notes for the first time since early last month. The worst-received bond sale by Germany since the launch of the euro is a clear signal that investors are in serious doubts about the current state of affairs. The Euro broke below 1.3420 against the US Dollar in reaction to the German auction news, opening the door for a full retracement back to October’s lows at 1.3142.
On Wednesday European shares hit their lowest close in seven weeks on worries that Europe is now starting to become affected by the contagion and on fears about the slowing global growth after weak Chinese factory data. The FTSE fell on Wednesday for the eight consecutive day, at 5.140, down another 67 points, suffering the worst losing streak since 2003. Banking and insurance stocks were among the biggest losers on concerns about potential exposure to worsening eurozone sovereign debt crisis. Today the UK benchmark opened higher with technicals encouraging investors to buy stocks. At the time of writing is hovering around 5.150. UK government securities advanced yesterday, pushing 10- and 30- year yields to record lows, as minutes of the BoE’s most recent meeting showed that some policy makers endorsed an increase in stimulus. The sterling appreciated 0.4% against the Euro, halting a three day decline, as investors sought safety.
In the commodity market, the yellow metal fell further on Thursday as a firmer US dollar put the bullion under pressure and declines in equities prompted investors to sell gold in order to cover losses. Today sees the release of CBI industrial trends. In the month of October the UK industrial sentiment deteriorated sharply and analysts paint a bleaker picture for today’s release, fuelling concerns that the UK economy is in serious danger of contracting in the fourth quarter. With the US markets closed today for the Thanks giving holiday, volume is expected to be much lower.