Growing hopes that Greeks could vote for the pro-austerity coalition during the June elections eased some of the worries that the embattled nation will quit the euro, and in turn fuelled optimism across the Atlantic.
In addition, the US economic data showed signs the housing market might have found a bottom which also supported a 125 points rally in the Dow Jones to 12,580. However, consumer confidence took a hit and across this side of the pond the eurozone crisis continues to rage.
The hopes that investors had pinned on Spain being able to tap into the ECB’s coffers to help them bailout Bankia have been blown out the water and now they will have to rely on funding from the bond markets. As mentioned in yesterday’s comment the EU rule books have been ripped up but this time the ECB has refused to set a precedent for Spain and rightly so. How can they save one Spanish bank without directly doing the same for others?
The fact that Spain continue to claim that they don’t need any financial assistance from outside to survive isn’t helping matters either as people simply look back at what happened to Greece, Ireland and Portugal who did the same only to have to be suddenly bailed out by the EU and IMF. With the cost of their government borrowing ever rising the situation for the country is becoming unsustainable.
So as the uncertainty rumbles on in Europe the FTSE continues to oscillate around the 5350 area, struggling once again, for the third time this week in fact, at getting above and beyond 5400. What also hasn’t helped the bulls is the noise from China who has said that they are not planning any big stimulus packages to prevent their economy from diving faster than it is at the moment. This is particularly poignant for the FTSE which is so heavily laden with mining and energy stocks that have been heavily weighing on the index in the past few weeks.
Economic data comes in the form of EU confidence this morning which is due to hit a two and half year low. This figure demonstrates how dire things are on the continent, and the way things are currently going it’s hard to see them getting any better.
The downgrading of Spain’s credit ratings undoubtedly sent the euro to its weakest level against the greenback in almost two years on fears the country’s financial troubles are about to escalate. The drop of 52 pips to 1.2486 kept the downside momentum intact and the fact this early morning that bearish trend looks set to continue indicates how much confidence the markets have in the common currency at the moment. Nonetheless this Friday the focus could shift across the pond given the release of the US employment report.
A stronger US dollar scared any potential gold buyers again and pushed the market prices 20 bucks lower to $1554.6. The yellow metal seems to have lost its safe haven appeal lately acting as any commodity, at the mercy of the greenback. What’s interesting is that, in the longer term, one can hardly discard the inflation threat given all the money printed out of thin air and gold holders stand to be insured against that.
Although a meaningful rebound in WTI crude prices is overdue, it is also hard for the bargain hunters to step in as long as the US dollar sees ongoing demand. Yesterday, the equities posted a recovery but that failed to convince crude oil buyers. As a result WTI prices closed 35 cents down at $90.76 with investors possibly waiting for the NFP figures to give them some much needed extra clues on the likelihood of the short term direction.