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Mardi 26 Juin 2012

Today's Markets - June 26, 12 (3 comments a day)

Today's Markets - June 26, 12 (4 comments a day)

Today's Markets - June 26, 12 (3 comments a day)
09:00 A.M

Earlier this morning the German GfK consumer confidence figure showed a surprise increase defying expectations of a decline and standing in stark contrast to the most recent steep declines seen in the German IFO and ZEW indices as upcoming substantial wage increases giving the German consumer a much needed dose of optimism.

Today we are having the first set of Italian bond auctions this week with more to follow on Thursday when 3 Billion Euros of 10 year bonds will be auctioned off, which for many will be the ‘real’ test of how risk averse investors have become. Compared to a couple of weeks ago the environment is certainly more constructive for bonds to be auctioned off with Greece having managed to form a pro bailout government and Spanish bank stress tests having yielded positive results however with the Italian banking system under increased pressure yields in Italy are remaining high with a further increase might be needed in order for fuel investor’s demand. Moody’s overnight downgrade of 28 Spanish banks had been widely expected as the ratings agency had downgraded Spain’s sovereign rating less than two weeks ago and therefore should only have a very limited impact on today’s trading.

Generally equity markets are expected to be range-bound today ahead of the EU summit later in the week, with more weakness possible as worries about global growth are continue to dominate market action.

In the afternoon all eyes will be on the US consumer confidence figure with another decline expected compared to last month reading mirroring recent weakness seen in the overall economy. With only a moderate decline expected, the risks however seems to be to the downside with this number especially in light of renewed pronounce weakness in the US job market and some dramatic declines seen in similar figures for several European countries during the past weeks. Just over a week ago any major decline would have sparked speculations that the Fed might be stepping in very soon, however in light of the most recent FOMC meeting showing that the Fed is in no rush to implement QE3, investors aren’t so sure anymore. Instead a weak reading would not only cause concern that the deterioration of the economy is accelerating but also that once the Fed finally steps in that it might be too late and that the impact will fall short of what is needed.

Markus Huber - Head of German HNW Trading - ETX Capital

12:30 P.M

Stocks stabilised in Europe by mid-day trade on Tuesday, with investors attempting to build positions after yesterday’s hefty selloff across regional indices. German GfK consumer confidence bucked the trend in recent poor economic data from the country, painting a better picture than anticipated. However, caution has been adopted ahead of the EU summit later this week.

This helped European markets pick up a touch at the open, but by no means has erased the ongoing concerns surrounding the euro zone. Worryingly, Cyprus has requested aid from Europe’s bailout fund, saying it needs to contain the crisis infecting its banking system which has been hurt considerably by the crisis in neighbour Greece.

Although Cyrpus asking for aid isn’t a huge surprise [and the request of EUR10b is small] given how the country is so inextricably linked to Greece- the news fuels contagion fears. EU leaders now have another topic to discuss at the summit – troubles in Cyprus should only reinforce that leaders must act soon. Finance ministers from Germany, France, Italy and Spain are set to meeting in Paris before this week’s big meeting.

A large number of Spanish banks had their credit ratings downgraded last night, but this again did not come as a surprise to the market. The Spanish stock market added gains today, suggesting the downgrades by Moody’s have been shrugged off, as the sovereign rating was cut by Moody’s around two weeks ago.

At present, the market is digesting the results of Italian and Spanish debt auctions. Borrowing costs for both countries rose as the short-term auctions, suggesting markets are doubtful that EU leaders will beat expectations with debt-busting measures at this week’s summit.

Spain sold at the upper-end of its targeted range, but yields rose sharply. Meanwhile, Italy’s auction also disappointingly saw yields on the rise. Both auctions did little to cause any dramatic movement in markets – although the rising yields continue to worry investors, both countries continue to see decent demand at auctions.

Looking ahead, the attention falls to US economic data to provide so much needed direction. More housing data and consumer confidence reports should offer more details on the health of the world’s largest economy. Ahead of these reports, ETX Capital calls the DJIA up 33 points and the S&P 500 up 4 points.

Ishaq Siddiqi - Market Strategist - ETX Capital

17:30 P.M

Stocks have ended in a soft manner today, with clients holding back from taking on risk ahead of the EU summit later this week. US economic data again has been weak overall. Despite a better reading on the housing front in the latest S&P Case-Shiller home price report, US consumer confidence fell to 62.0 in June from 64.4 in May, suggesting sentiment is fragile with the decline in financial markets adding the pressure.

Further declines in prices will hit confidence again in the months ahead, despite an expected boost from the recent fall in gasoline prices. Separately, the manufacturing Richmond Fed index said it sees the US economy contracting this month, with employment indicators seeing further weakness.

Worries that leaders are set to disappoint continue to grow, as Germany refrains from its stance on Eurobonds. Expectations for united measures by leaders have been pulled back as a result – a better than anticipated delivery of measures would be a welcome boost for market.

Cyprus requesting a bailout wasn’t too much of a surprise – the move only reinforced fears that the crisis is ballooning. Moreover, it raises questions over who will seek a bailout next, and this has pressured sentiment significantly in Europe.

Spanish and Italian bond yields have risen following debt auctions by both countries that although went well with solid demand, yields continued to rise. This again implies that caution remains ahead of the summit, so expect risk assets to continue underperforming in Wednesday’s session.

Looking to Wednesday’s macro menu, German inflation figures, US durable goods orders and pending home sales will be under the spotlight. Euro zone finance ministers will also hold a teleconference tomorrow, with the discussion to be on the bailout requests by Cyprus and Spain.

Ishaq Siddiqi - Market Strategist - ETX Capital


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