It seems like it has been a long time coming, but yesterday market participants saw euro zone leaders get their heads together and work out how best to put a lid on the Greek crisis.
By the end of a long day, they had put together a rescue package that will cut the country’s debt by 12 per cent of GDP from its current 140 per cent level. There were still pessimists sitting on the peripheral borders, with a view that the good news won’t be taken well for too long, and as the full details emerge, doubts will return to the market place over both the sustainability of the contagious country’s debt burden and the largely fundamental problem of the euro zone’s competitiveness.
Over in Tokyo, stocks climbed to a 2 week high, having been given a boost by buoyant banks that jumped after Morgan Stanley’s results came in with a bang. Even though foreign buyers appear to be taking a back seat for the time being, domestic investors, individual and institutional, have been dominating the market place, with the yen’s renewed strength against the dollar capping the gain just above 10,100.
After the UK bluechip index closed a volatile trading session (137 point range) 46 points higher on Thursday at 5899, investors saw the rally continue, with the market kicking off at 5927 this morning. But with the expiry of futures and options taking place mid-morning in London, and bulls and the bears fighting over whether the second bailout package is actually going to help the lagging euro zone nation in the medium term, there could be choppy waters ahead for the FTSE 100. On the macroeconomic front though, no data is due for release from the UK or our friends across the Atlantic.
US President Barack Obama released his plan to raise the debt ceiling yesterday, maybe trying to counter the news from Brussels, but not helping the greenback gain against the euro. Maybe this was due to scepticism over whether the deal will be approved by both sides in time, or maybe the optimism that European leaders will once and for all agree on the new bailout package could not be beaten. Either way, the EUR/USD pair gained 91 ticks to 1.4261, and at time of writing it’s carrying on its rally, trading at 1.4409.
Earlier this month, the Monetary Policy Committee got together over tea and biscuits and voted at 7-2 to keep interest rates at 0.5 per cent, stating that current weakness is likely to continue, and thus reducing the need for tightening. However, no one seemed to mention a second batch of quantitative easing, given that inflation is still sitting at more than 2 per cent above target. Yesterday, this subject appeared to be rife among investors and, as a result, the UK sterling moved 38 pips higher versus the US dollar, closing at 1.6164. While watching the move as I write this report, the optimism for the UK currency is still apparent, and the pair is trading at 1.6299.
With positivity over the thought that both US and EU officials will strike a deficit reduction deal and a bit of profit taking kicking off yesterday’s trading, gold edged lower in early trade, but after not being able to break the support of 1580, it decided to have a turn around. Whether this was due to bargain hunters buying on the dips or maybe a lower greenback assisting in boosting the precious metal, either way the yellow brick finished the day at 1598, with a 9 dollar gain.
In both corners of the ring yesterday, black gold had strong opponents. The red corner was boasting a surprise increase in energy products statistics, and the blue corner had an inventories report from the US department of Enegry which indicated a bigger than expected drop in crude stockpiles for last week. The support offered by a weaker US dollar sparked a bullish fight, but a few rounds later, profit taking pushed the market back down, meaning the result for crude was that it finished where it started.