Compass Directions Morning Report Thursday, 8 December 2011
Rating’s agencies continue to influence the markets despite the inevitability of their announcements. Standard and Poor’s overnight an-nounced that it may cut the credit rating of the European Union as well as those of BNP Paribas, Commerzbank AG and Deutsche Bank. S&P moved to place the EU’s rating on creditwatch negative after earlier taking the same action for 15 of the 17 Eurozone mem-bers. There is increasing speculation that European leaders will announce a range of measures at their summit this week that will involve the ECB in their fight to contain the debt crisis. The EUR fell in the wake of the S&P announcement before recovering to open this morning above 1.3400.
There are various options that may be pursued as the European leaders work towards another plan to stem the crisis. Bloomberg has reported that officials, who spoke on the condition of anonymity, said that options being discussed include “the ECB loosening collateral criteria so that institutions have more access to cheap ECB cash and offering them longer term loans.” The latest “Merkozy” plan will also call for a review of EU treaties to better control national budgets in an attempt to bring more fiscal Yields on 10 US Treasuries fell 7 points to just above 2%. The Australian dollar continues to perform relatively well rising to trade just below 1.0300.
US equities have now climbed for three consecutive sessions. Markets initially fell after S&P announced that it may cut ratings for the EU and some of the region’s largest banks before staging a late rally. The S&P 500 is now trading flat for 2011 and has failed to make any gains as the European debt crisis continues to spread. US consumer borrowing increased in October to the highest level in 2 years and may indicate either a recovery or distress. However, it is more likely that the data is an indication that Americans are once again rely-ing more on credit to maintain spending even as income growth slows and house prices fall. The index has closed 0.2% higher to 1,261. Earlier in Europe, the DAX closed 0.57% lower at 5,995 while the FTSE lost 0.39% to 5,547.
Commodity prices have eased overnight with WTI crude losing ground by 1% to just above $100.00 after the US Energy Department reported climbing crude and fuel inventories. Crude stockpiles rose 1.34 million barrels last week to the highest levels in 10 weeks. Pre-cious metals bucked the trend. Gold rose 0.74% to $1,744 while silver lost 0.79% to $32.45. Soft commodities while copper fell another 1%. The CRB index is lower by more than 1% to 310.07. Domestically, look out for the release of the high impact employment data.
GOLD moved modestly higher in offshore trade as pessimism grew about Fridays EU Summit outcome. We have seen mixed comments over the course of this week and last night we saw some negative views out of German officials which shifted sentiment midway through the European session. The USD was steady and equities paired losses in US trade as talks of an IMF package surfaced. Gold finished US trade stronger by 0.80% at $1,742. Gold traded quite differently last night and actually looked as though a real safe-haven asset last night as commodities moved broadly lower along with equities but Gold managed to post modest gains. This clearly shows that investors are not convinced of a solution in Europe in both the short and long-term which will see gold prices well supported for a long time to come. We have seen equity futures in the US rise in late trade and this should support markets today after a report surfaced regarding potential IMF involvement in any solution for Europe which has seen buyers return. Gold should remain very well supported today on the lead up to Friday and support down at $1,727/35 should hold form here and present god buying opportunities. Major resistance remains at $1,750/52 so watch this level closely as a break here in Asia today should see big gains triggered targeting $1,763 initially.
AUD/USD followed the direction of the majors during the European and US session with the first move actually being a risk off play as unmanned ECB officials warned that the likelihood of all member states agreeing to the terms that are likely to be presented over the comings day will not be accepted. AUD dipped into the US morning with the low set at 1.0220, where the markets turned around as traders were happy to sit and wait for new opportunities towards the end of the week. We close the day with the price now towards the daily highs in a move that was more expected during European trade. Australian Unemployment number are due to be released at 11.30am local time and with the solid number of late its hard not to think that the run will come to an end as the European crisis scares off new employment opportunities. Part time jobs could take up the balance and save the day. 1.0330 selling should be able to handle until the numbers if there was to be a morning bullish tone!
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