We had expected to see the FTSE take a bit of profit this morning and whilst the index opened slightly lower it has been quick to bounce back to where it left off last night.
Oil majors are assisting the buyers following better than expected earnings from BG and BP and for once it would seem that investors are focusing on decent corporate news.
But of course the market isn’t really as the overriding issue remains how much of a write down private investors will accept on their Greek debts. The losses incurred amount to billions and the required resulting recapitalisation of banks is going to make the recent bout of austerity measures announced across Europe look like a bit of a picnic in the park. Lending will likely get frostier as investors ask “if I’m going to lend to Greece and lose over half my investment then why should I lend to Spain or Italy?”
As the battles and discussions go on behind the scenes markets remain optimistic that the plans will be enough to prevent contagion and an EU catastrophe. The FTSE’s two and a half month high has been attracting clients to sell into the index as they remain doubtful of a distinct and lasting resolution.
Rather surprisingly, some German consumer confidence data released today came in better than expected which is encouraging for Europe’s biggest economy. This indicates that the European sovereign debt crisis doesn’t seem to be affecting them as much, and certainly their buoyant labour market isn’t depressing German consumers like rising unemployment is in the UK.
Later on today we see US consumer confidence which could prove a bit of a market mover. Confidence is expected to rise a little but remains at low levels as the outlook for business conditions continues to struggle.
The euro moved higher against the dollar yesterday but has been trading gradually downwards in a tight range this morning to around 1.3916. It’s likely that a lot of traders are looking to the EU summit tomorrow to talk further about the debt situation in the eurozone, which is why ranges are so tight. Looking at the ten-minute chart, the pair is trading within a bullish channel, which could signal some upside. However, if it breaks through 1.3830 we could then be looking at 1.3750.
Cable has recaptured the 1.6000 level this morning, not seen for six weeks or so. The sharp bounce from below the 1.5500 level has caught some bears off guard and the pair is now back above both the 20 and 55 day moving averages. Dollar weakness is giving the upper hand to the likes of the euro and sterling as the appetite for risk continues to improve.
The tables have turned for gold and now optimism over the European debt tragedy seems to be a key driver for the precious metal, unlike previous months where pessimism has been causing investors to use the yellow brick as a hedge. Market participants also saw the usual suspects help gold increase, with a weaker greenback making the dollar denominated commodity more appealing and the seasonal benefit of the wedding months in India meaning demand for physical was high as the yellow metal is a favourite gift. All in all, gold finished the day up 12 dollars, ending the day at 1652.6 and at time of writing we haven’t seen substantial direction added, as it trades at 1654.7.
As the gap between supply and demand narrowed for crude yesterday, traders piled in to the liquid stuff. The weaker US dollar and higher equity market were also working hard to help push the energy sector higher. Yet another boost was given by estimates that China’s growth remains resilient and Japan’s economy is recovering fast after the devastating earthquake and tsunami, meaning that demand for the liquid stuff is still strong. Brent is a few cents higher at 111.55 at the time of writing.