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Daily Market Report 09/01/2012

European shares
The positive employment data from the other side of the Atlantic on Friday failed to detract from deepening concerns over the debt crisis in the euro zone, where retail sales and economic sentiment stalled. The ECB stepped into government bond markets to buy debt issued by the Italian and Spanish governments, after their borrowing costs spiralled higher to unsustainable levels on Friday, while Hungary saw its credit rating being downgraded to “junk” status, indicating that recession may be imminent in the single currency area. European shares edged higher this morning, with banks among the main beneficiaries, but in cautious trading ahead of the start of the US fourth-quarter earnings season and the first meeting of the year between Merkel and Sarkozy. The FTSE 100 is trading at 5660 at the time of writing. The low trading volume suggests than investors remain extremely wary of the outlook.
FX
The dollar rose to its highest since September 2010 at the expense of a battered euro, which sank to a 16-month low against the greenback and an 11-year trough versus the yen. Although the fundamentals continue to be negative, a potential corrective rally in the Euro over the coming session should not be ruled out as the single currency is technically oversold. A close above 1.2820 could trigger a move back towards the 1.3000-1.3200 area, before the underlying trend resumes.
Commodities
Gold is in bounce mode this morning. After last week’s buying momentum pushed gold prices up 3%, the bullion opening lower but managed to turn in positive territory. The precious metal is now firmly above the 1.600 level and has been rallying throughout this morning taking it to 1.622 at the time of writing. Brent also has the wind in its sails as the losses due to the stronger US dollar in early Asian trade were capped by supply concerns after Iran’s threat to shut a strategic oil-shipping route. The liquid stuff could reach fresh highs as tension continues to mount. At the time of writing Brent is trading up at 113.75. Key levels for the bulls to watch are 115.48 (October’s high) and 118 (July’s high).
Today’s calendar
Europe remains the key issue and next week sees the French and German leaders meet for the first time in the New Year today, which will be followed by a round of talks among euro area leaders before the next summit in Brussels on 30th January. Key economic data for today include German industrial production, followed by US Consumer credit.

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