Markets are edging higher as buyers creep back in to test the water after weeks of losses and we are on course for our first weekly gain in four weeks.
This comes despite poll readings in Greece that indicate anti-bailout party Syriza could win the next Greek election outright, which doesn’t seem to be unsettling investors. Whilst the costs of a Grexit (no point in inverted commas now as everyone seems to be using the word) are a complete unknown, people are getting used to the fact that they could leave the single currency and European political leaders have been at least talking about it more openly.
The euro remains firmly in a downtrend, investors continue to pile into German bunds that are returning them next to nothing and Spain’s economy is continuing to be crippled by rising borrowing costs and more bank bailouts. The recipe is a toxic one that shows just how serious the European crisis is becoming and now that we’ve had the big shake out in equities, it would seem that for now at least the selling has been exhausted.
Worries about an economic slowdown in China kept the Dow Jones on the back foot initially. But later on, Italian Prime Minister Mario Monti joined the French leader Francois Hollande in becoming more vocal about support for issuing Eurobonds. That gave investors some optimism, enough to push the Dow Jones back up and the session closed 38 points higher at 12,529. The mildly bullish sentiment from European stocks this morning looks to be filtering into US futures already as we’re calling the Dow to open 35 points at the time of writing.
The FTSE is some 20 points higher at the time of writing meanwhile the German Dax is powering ahead as it is putting on nearly a whole percentage point of gains, up by 50 points.
The German manufacturing data disappointed investors yesterday sending the euro to a new 22 month low versus the greenback. In addition, China admitted its biggest banks are struggling to meet the loan targets which in turn added extra downward pressure on market sentiment. Italian Prime Minister Mario Monti saying ‘Greece is likely to stay in the euro’ did not help too much as the shared currency ended another 51 pips in the red, at 1.2535. This morning tentative buyers are creeping back in which is pushing EUR/USD up to 1.2560.
We saw a recovery in gold prices initially on the back of a weaker US dollar, but that boost evaporated once market participants went back in a risk off mood. Just like in the previous sessions gold started to act as any other commodity inverse correlated to the dollar and less as a safety hedge, losing in the end 3 bucks to $1557.60. At the time of writing the precious metal is at 1562 and whilst it may have broken below its multiyear upward trend line the 1530-5 area is the major support level which everyone’s watching where gold has bounced off three times in the past eight months. A break below here could really open the flood gates.
The WTI crude prices stopped for a breather yesterday as bargain hunters joined the market and pushed for a cross above the psychologically important $90.00 mark. It was an anaemic gain of 13 cents to $90.66 which hardly brings any changes about the overall bearish picture, and if the US dollar will see ongoing safe haven demand it could turn even uglier for the buyers.