The European Dream is being tested to its core. The cost of such a bailout will take years if not decades to recover from. We’re not just talking about banks anymore, but countries that in the past few years have spent and spent and spent. The PIIGS have to achieve the near impossible by reducing their deficits whilst at the same sustaining growth and expanding. Such drastic measures are the civil unrest that we’ve had a little taste of so far will most likely augment.
The lack of detail in any bailout will over serve to further shroud the markets in uncertainty and volatility is likely to continue. Weakness in the euro continues this morning with investors favouring dollars and even pounds.
The appetite for risk however hasn’t dried up and investors continue to focus on corporate earnings which on the whole remain unaffected by the headline news. The recent correction in equity prices is offering up some cheap(er) stock and bulls have been adding to their long positions. So far this morning the FTSE is putting in a decent show back above the 5200 mark some 45 points to the good.
The little bounce we’ve seen recently will be tested around these areas as many markets and individual stocks that have dipped below crucial moving averages are now testing those levels in an attempt to break back above them. These areas often give resistance and the next few days will see if the appetite for more exposure to equities is enough to drive us back up above these moving averages or whether there’s more room for a move to the downside.
The breakdown of the upward trend would suggest that the upside is limited, but we can’t rule out a push to test January’s highs. Clients had a good run of it yesterday riding the move higher and have taken profits this morning. For now they remain a little undecided.
Economic data is a little thin on the ground today with a smattering of GDP numbers from the euro zone and already we’ve seen a worse than expected number from Germany. This number could lead to a weaker EMU figure at 10am this morning which is expected to come in at 0.4%.
Later in the day we have the University of Michigan data from the US which is due to come in a little higher at 74.7, but don’t be surprised if this too disappoints particularly since equity prices have come off so much.
The currency markets had a roller coaster ride yesterday as we waited to hear exactly what form the Greek bailout would take. EUR/USD hit an intra-day low of around the 1.3600 just as it did last Friday before bouncing in anticipation of the EU sweeping in to save the stricken Greeks. We can safely say that 1.3600 is strong support for now and we can’t rule out a bear squeeze that was attempted on Tuesday only to fizzle out.
The bailout talk has put pressure on the dollar and that’s translated into gold strength. On top of this there will always be the safe haven attribute to gold that’ll keep it supported and with half the euro zone being brought to its knees investors will be attracted to the precious metal. Gold made a surge later in the day and nearly reached 1100.0 but is taking a breather this morning. We’re at the upper end of the small up trend that’s formed and resistance is seen around 1100.
Crude put in a good show as well after a see-saw with better than expected jobless numbers sending us higher at first, higher inventories reversing gains and then dollar weakness towards the end of the day lifting us over a buck higher with risk lovers extending long positions of the black stuff. With Nymex at $74.65 this morning the next resistance is seen around 75.75.