Daily Market Review 19/12/2011
The fear of imminent rating downgrades materialised in the past week with Fitch lowering the outlook of major European and US based banks and Moody’s cutting Belgium’s credit rating by two notches on Friday, indicating that the euro zone crisis is far from being resolved and the state of affairs in Europe is hurting the investor sentiment. European shares opened lower today following the weak Asian markets, where there are fears that the death of the North Korean leader could bring instability in the region. The FTSE 100 finished the week in red dipping below 5400 as worries about global growth intensified. Today the UK benchmark index is trading up at 5395. The bullishness in the run up to Christmas is nowhere to be seen this year. For the FTSE to get back to positive territory for the month it has to climb 246 points from its current price.
The US Dollar pushed higher overnight, adding an average of 0.4% against its leading counterparts, as stocks plummeted in Asia driving the demand for the safety linked currency higher. The sovereign pressure in Europe appears to be reinforcing the case for risk aversion and promising continued gains for the US Dollar. The Euro was continuously sold against major rivals in the past week, either if we had bad news or no news at all. After the EUR/USD broke below 1.300 it will not be easy to the common currency regaining the upside beyond some corrective movements. This morning the pair is trading right above the psychological level of 1.3000 with support sitting in the 1.2870 price zone, this year low.
The precious metal edged lower today after posting its biggest weekly loss in nearly three months under funding stress and disappointment on the lack of solution on the euro zone crisis, as a possible downgrade of France kept investors on the edge about the situation in Europe. This morning the yellow brick is trading right below the 1600 level, and as financial markets are entering the penultimate week of the year liquidity is expected to shrink, which may leave prices prone to wild swings. Brent crude fell below $103 in the early trading but appears to be in bounce mode. At time of writing, black gold is trying to rectify some of the damage and is trading up at 103.19.
Today the spotlight turns to the French bond auction, where the second largest Euro zone economy is set to sell €7 billion in short-term paper. Investors will be closely watching the demand levels and prevailing yields.