Daily Market Reports | May 29 2012
By Rudi Filapek-Vandyck
US equity and treasury markets were closed on Monday as the country enjoyed a long Memorial Day weekend. Over in Europe, most countries were celebrating their annual banking holiday. Needless to say, not much happened overnight. Base metals prices in London tried to rally from the opening of trade, but it soon became clear there wasn't enough conviction nor volume to sustain the upward momentum, so prices merely drifted into the closing bell.
Equity markets that did open on Monday showed a similar, lacklustre session. The FTSE in London posted small gains, but both the DAX and CAC endured minor losses. US futures remain in positive territory on the back of hopeful indications from weekend polls in Greece, which are suggesting the populace is not willing to take the risk to go solo. It may well be that Asian markets also continue their cautious, but positive tone today. The Australian share market made a rather big leap yesterday, so there may be some payback for this today.
The SPI futures for June are indicating the local market might open on a slightly more cautious footing this morning.
Global equity markets are a bit in a vacuum, with key economic data in the US and China not due until later in the week. Meanwhile, chartists all around the world are divided about what to make of recent price moves. I noticed there were quite a few commentators on financial TV in Australia yesterday declaring "the bottom might be in" for risk assets. I also note there's a whole army of commentators and chartists who'd like to dispute that statement as "too early".
Later today we will publish a video by ATW technical trader Jerry Simmons who supports a positive outlook for risk assets, taking guidance from hopeful euro movements. Yesterday we published a market analysis by TheChartist, who's usually positive, but not this time as he anticipates sellers will remain in control beyond this week's technical bounce.
As has been the case thus far in 2012, there's enough around to keep both the bulls and the bears satisfied. Apart from voter intention polls in Greece, there are also signals that the Irish will prefer to stick with the devil they know (the eurozone) instead of more radical alternatives. In Spain, the government has asked the European Central Bank to provide additional support as market rumours about more bank bailouts weigh on local sentiment. Spanish equities lost more than 2% last night, while Spanish 10 Year Bond Yields rose 15.6pts to their highest level since November 2011 at 6.4240%.
Italian 10 year Bond Yields also rose 7.2pts and now sit at 5.7120%. Italian business confidence continued on its increasingly sharp downward trajectory in May, dropping from 89.1 in April to 86.2 – now showing the lowest reading since September 2009. The Italian economy contracted by 0.8% in the March quarter and monthly indicators are still deteriorating. Economists are now anticipating the ECB will cut official interest rates by 25bp in the September quarter, at the very least.
Italy sold 3.5 billion euros of a new May 2014 zero-coupon bond, the top of its planned target range – yield 4.037%, the highest level since December.
Following on from positive sentiment on Asian markets, the euro put in an initial brave effort in European trade but couldn't keep momentum going. Same as the base metals, really, with rising bond yields in Spain and Italy soon reminding investors that hope is one thing, but not necessarily the full picture. The euro fell from highs around US$1.2620 to lows near US$1.2525 and closed US trade at US$1.2535. The Aussie dollar hit early highs near US98.85c before easing to lows near US98.35c and ended US trade near US98.45c. And the Japanese yen held between 79.30 yen per US dollar and JPY79.50 and ended US trade near JPY79.45.
Benchmark crude oil prices managed to rise for a third consecutive day on Monday. Supporting prices was lack of progress on negotiations with Iran on its nuclear program. Further talks between Iran and the International Atomic Energy Agency are scheduled for next month in Moscow. US Nymex crude rose by US29c to US$91.15 a barrel. London Brent crude rose by US28c on Friday to US$107.11 a barrel.
As stated earlier, base metal prices ended mixed on the London Metals Exchange. Copper was the best performer, achieving a rise by 0.5% on hopes of further Chinese stimulus. The gold price rose on Monday, marking the third straight session of gains. The June Comex gold futures price was up by US$4.10 or 0.3pct to US$1,573.00 an ounce.
Meanwhile in the background… Spain's central government and regions need to refinance 117.5 billion euros of debt by the end of the year, while funding a deficit worth 52 billion euros. You didn't think this whole euro-troubles saga was going to be over anytime soon, did you?
Greg Peel will be back on June 11.
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