FYI | Aug 06 2012
By Andrew Taylor, Market Strategist GFT
Top Headlines
o The ECB speculation machine fires up again
o Markets overlook rising Unemployment rate (8.3%) for 163k new jobs created
o AU Job Ads -0.8% vs prev -1.2% > slightly weak lead before Thurs Employment data
o Market Moves:
• EUR and AUD hold gains in light trading
• ASX200 off from initial highs; Nikkei powers on with strong Earnings by Toyota
• Precious Metals, Oil and Copper hold highs ahead of European session
Equities, commodities and risk currencies all managed to hold onto their gains during the Asian session as sentiment shifted from one of bitter disappointment to renewed confidence thanks to a lifeline thrown to traders from the ECB and US jobs data on Friday.
Before the US jobs number was released, markets bought into ECB rumours in abundance on information that there may be wheeling and dealing going on behind closed doors to address Spain and Italy’s stubbornly high borrowing costs. The path would be via the EFSF to go on a mass bond buying spree, not too dissimilar to what the markets were hoping to hear from ECB President Draghi less than 24 hours before.
The immediate positive price action has shown that traders believe Spain will be requesting a full sovereign bailout soon; this is a requirement before access to bailout funds is given. However this may prove to be a sticking point, as Spain won’t want to commit to anything without knowing the exact terms of the bailout deal. There will need to be a leap of faith at some stage by Spain for this plan to materialise but that ‘leap’ may not be as blind as many may think. Last Thursdays joint meeting between Italy and Spain saw an unusual lack of information post conference, which adds to the speculation that deals are being done out of the public eye.
The US jobs data showed that markets were willing to look past the slight increase in the Unemployment rate from 8.2% to 8.3% and instead preferred to herald the victory of 163k new jobs being created. In the grand scheme of things this number will need to keep improving but for now markets have had to adjust from their low expectation set positions.
Bernanke is scheduled to speak today but is not expected to include anything of monetary policy or market value. The next appearance at Jackson Hole is however a different story.
Outlook
The European session will be the first real test of how markets have digested Friday’s events over the weekend. The highs reached Friday look set to be tested again with the only real question being if markets need to pull back to find its support before a run up that hunts stops. Traders need to be wary that these positive moves on speculation of action can be reversed just as quickly, so keep an eye on headlines along with Spain and Italy’s bond yields for guidance.
Economic Events to watch:
Note: Times are in GMT
0700 UK Jul Halifax House Price Index
0800 UK Jul UK monthly car registrations figures
2301 UK Jul BRC-KPMG Retail Sales Monitor
For more intraday analysis and trade ideas, follow me on twitter @ATaylor_GFT
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