Sovereign debt worries in the Euro Zone continued to haunt financial market sentiments. Despite some positive news on support to the ailing European countries the Euro slumped 2.4% in the last week. The impact of the debt crisis on the global economy is being introspected and this has led to risk aversion across the globe. Demand for higher-yielding and riskier investment assets has generally declined as investors have become cautioned. During the week the Euro received some support after China's foreign-exchange regulator affirmed its commitment to investing in Europe. This led to hopes of improvement in the current economic scenario of the Euro Zone. But soon the optimism faded as the long-term impact of the $1 trillion bailout package coupled with slowdown in economic growth in the European region also came under scanner.
The Euro is headed for the sixth monthly loss against the dollar. Concerns that the European measures to lower fiscal deficits and contain the region's sovereign debt crisis may undermine global recovery and have led to reduced appeal of the Euro. A major factor that is weighing on the Euro is the lack of coordination between its members and markets are also losing confidence in the Euro Zone leaders. On a year-to-date basis, the Euro has slumped 8% on concern that rising government budget deficits will lead to defaults and an eventual break up of the Euro region. On the back of these worries in the Euro Zone, the US Dollar Index has gained sharply as risk aversion has led to increased demand for the low-yielding dollar.
Spain loses AAA Rating on debt burden
The latest negative development that could lead to further losses in the Euro is that Spain has lost its AAA credit rating at Fitch as Europe continues to battle with its debt crisis. The European policymakers have crafted a $1 trillion rescue package for the region's weakest economies but this has not been successful in lifting sentiments. Fitch Ratings has downgraded Spain's AAA rating to AA+ and has assigned the country a stable outlook.
This downgrade in rating has come at a time when Spain is trying to cut the euro region's third-largest budget deficit as the economy is witnessing a collapse of a debt-fueled construction boom. The unemployment scenario in Spain is very discouraging as it is running at 20% and the country's once booming housing market is also suffering a slump.
Economic situation in the Euro Zone remains bleak as debt affected countries have adopted austerity measures. But the country faces challenges in implementing austerity measures. Spain has also agreed to deeper spending cuts that would help to slash the deficit to 6% of Gross Domestic Product in 2011 from 11.2% in the last year. But a cut in public wages and pensions in Spain has failed to convince markets that the country can put finances back in order with the current high borrowing costs. These ongoing worries in the Euro Zone could continue to put downside pressure on the Euro. Even if global policymakers step up efforts in order to save the crisis from spreading further, we expect risk aversion in the financial markets to remain as investors remain cautious.
Continuing worries in the Euro Zone and recent downgrade of ratings in Spain is expected to have a negative impact on the Euro. The currency will also take cues from the economic data announcements in the coming week. The most important being the European Central Bank President Trichet's speech on Monday. Financial markets await to hear the ECB President's view on the current scenario and measures that the central bank will take in order to prevent further worsening of the situation. We expect the Euro to trade with a negative bias in the coming week as ongoing economic worries will affect investor sentiment and the appeal of the currency is reduced further on account of downgrade of credit ratings of Spain.
Sunday, May 30, 2010
Sunday, May 23, 2010
Crude gets vulnerable on EU concerns
Crude oil prices on the NYMEX slumped sharply in the last week, touching a low of $68.85/bbl. Prices suffered a setback on the back of fiscal issues in the Euro Zone which could stifle global economic growth and also lead to lower demand for crude oil. This factor coupled with rising inventories in the US, the world's largest energy consumer is also leading to downside pressure on the commodity. Strength in the Dollar Index (DX) is additionally adding to downside pressure on crude oil which lost 18% in May.
Crude oil inventory data in the last week came on the bearish side as the US Energy Department reported a rise in crude oil inventories by 900,000 barrels to a record 37.9 million barrels in the week to 14th May. Crude stored at the delivery hub in Cushing, Oklahoma rose 500,000 barrels in the week to 18th May. This inventory data is bearish and continuing rise in inventories pose concern.
Fear of growth in oil demand grips markets
Markets are currently facing a hazy scenario. On one hand, positive economic data from the US is boosting sentiments. But on the other hand, US crude oil inventory data is negative and has failed to give a clear indication of growth in the world's largest economy. Ongoing concerns in the Euro Zone coupled with concerns of monetary policy tightening in China will continue to weaken risk appetite. Even if buying support comes in at lower levels, the overall trend in crude oil remains down. Europe's debt crisis could hurt global economic growth and slow energy demand. We also expect a slowdown in energy demand from China as the country may go on for further monetary policy tightening.
Factors affecting crude oil prices:
· The grim economic scenario in the Euro Zone has led to concern over consumption of energy.
· Combination of news from China and the EU debt crisis has created a scenario that markets have been dreading.
· Chinese growth may slow as Chinese officials may have to raise capital and lending requirements further to stem price inflation as the Chinese economy is overheating.
· Stronger DX on the back of worries in the EU.
· Greater downside risk on the back of EU sovereign debt crisis and decrease in EU GDP.
· Risk aversion in the markets is expected to stay on the back of forthcoming EU policy and structural decisions, success or failure of austerity drive in southern Europe, and further downgrades of debt ratings.
· We expect the Euro to weaken on the back of these issues. Loss of risk appetite coupled with apprehension about a government induced slowdown in the Chinese economy could further keep a check on oil prices in the short-term.
Fundamental Outlook
Risk aversion in the financial markets is expected to remain. Even if we witness short period of optimism, it is doubtful that it will last long as long term effects of the European debt crisis on the global economy are expected to be negative. Crude oil is currently battling with rising inventories in the US on one hand and grim economic situation in the Euro Zone on the other hand. On the back of these issues, oil prices are expected to trade with a negative bias in the coming week. Even if the weekly opening happens in the positive territory, we expect risk aversion to re-emerge and lead to lower demand for higher-yielding and riskier investment assets in times of financial uncertainty.
Monday, May 17, 2010
Dollar - The rally to continue……
Dollar rises on concerns in the Euro Zone
The US Dollar Index (DX) gained a whopping 2% in the last week as uncertainty in the financial markets led to increased demand for the low-yielding DX. There is skepticism over the $1 trillion rescue package decided by the European policymakers. Risks relating to the implementation of the package remain and concern over public sector finances, and weakness in the banking sector could further hurt recovery in the 17-nation Euro Zone.
The economic situation in the Euro Zone remains grim and the European Central Bank (ECB) has started buying the region's government bonds. The ECB will have to keep interest rates low for a long time as stimulus measures in this time of debt crisis is of utmost importance. However, the impact of this fresh debt in order to pay off the earlier debt could prove harmful.
These debt woes in the Euro Zone have affected market sentiments and lead to risk aversion. This in turn has boosted demand for the DX which touched a high of 86.29 in the last week. The DX has found good support above 85 levels and consistent closing above this level is reiterating the concern regarding the issue in the Euro Zone.
Economic data from the US has come on the positive side and is also leading to gains in the currency. Initial jobless claims in the US fell by 4,000 to 444,000 in the week ended 8th May and reiterated hopes of a rise in interest rates in the US as positive data means progress on the economic front. The US Federal Reserve is expected to be the first amongst the major central banks to raise interest rates. This expectation will boost the dollar further in the coming week.
Risk sentiments remain subdued on economic woes
Appetite for risk and demand for higher-yielding and riskier investment assets has become restrained because of rising worries about the long-term implications of Euro Zone debt problems. The following problems will continue to drive the Euro lower which is currently trading at a 15-month low of 1.2352.
• Political and social unrest in the European countries.
• How will the heavily indebted countries in the Euro Zone get public finance under control?
• There are doubts over the ECB's new role of buying government bonds in the secondary markets to maintain liquidity and keep yields low.
• Fear of long-term inflationary pressures.
• Germany, the Euro Zone's biggest country will have to undertake cutbacks as it absorbs its share of the cost of the rescue deal.
• A cut in government spending and a rise in taxes in order to relieve debt problems.
Fundamental Outlook
Economic concerns in the Euro zone will continue to haunt sentiments in the financial markets. Mixed sentiments will continue to prevail as markets cope with two separate developments - 1) Positive US economic data and 2) economic worries in the Euro area. Economic data from the US is expected to be positive and that will help markets gain strength.
The trend in the US economic data in the last few weeks has been positive. We expect economic data from the US to come on the positive side in the coming week. If the data comes in as per expectations then it could boost hopes of a rise in interest rates in the US and lead to strength in the DX in the coming week. The DX will also gain on the back of existing economic worries in the Euro zone. Despite the rescue package of $1trillion to the ailing European countries, markets are concerned over the implementation and impact of the same in the long-term.
www.angelcommodities.com
The US Dollar Index (DX) gained a whopping 2% in the last week as uncertainty in the financial markets led to increased demand for the low-yielding DX. There is skepticism over the $1 trillion rescue package decided by the European policymakers. Risks relating to the implementation of the package remain and concern over public sector finances, and weakness in the banking sector could further hurt recovery in the 17-nation Euro Zone.
The economic situation in the Euro Zone remains grim and the European Central Bank (ECB) has started buying the region's government bonds. The ECB will have to keep interest rates low for a long time as stimulus measures in this time of debt crisis is of utmost importance. However, the impact of this fresh debt in order to pay off the earlier debt could prove harmful.
These debt woes in the Euro Zone have affected market sentiments and lead to risk aversion. This in turn has boosted demand for the DX which touched a high of 86.29 in the last week. The DX has found good support above 85 levels and consistent closing above this level is reiterating the concern regarding the issue in the Euro Zone.
Economic data from the US has come on the positive side and is also leading to gains in the currency. Initial jobless claims in the US fell by 4,000 to 444,000 in the week ended 8th May and reiterated hopes of a rise in interest rates in the US as positive data means progress on the economic front. The US Federal Reserve is expected to be the first amongst the major central banks to raise interest rates. This expectation will boost the dollar further in the coming week.
Risk sentiments remain subdued on economic woes
Appetite for risk and demand for higher-yielding and riskier investment assets has become restrained because of rising worries about the long-term implications of Euro Zone debt problems. The following problems will continue to drive the Euro lower which is currently trading at a 15-month low of 1.2352.
• Political and social unrest in the European countries.
• How will the heavily indebted countries in the Euro Zone get public finance under control?
• There are doubts over the ECB's new role of buying government bonds in the secondary markets to maintain liquidity and keep yields low.
• Fear of long-term inflationary pressures.
• Germany, the Euro Zone's biggest country will have to undertake cutbacks as it absorbs its share of the cost of the rescue deal.
• A cut in government spending and a rise in taxes in order to relieve debt problems.
Fundamental Outlook
Economic concerns in the Euro zone will continue to haunt sentiments in the financial markets. Mixed sentiments will continue to prevail as markets cope with two separate developments - 1) Positive US economic data and 2) economic worries in the Euro area. Economic data from the US is expected to be positive and that will help markets gain strength.
The trend in the US economic data in the last few weeks has been positive. We expect economic data from the US to come on the positive side in the coming week. If the data comes in as per expectations then it could boost hopes of a rise in interest rates in the US and lead to strength in the DX in the coming week. The DX will also gain on the back of existing economic worries in the Euro zone. Despite the rescue package of $1trillion to the ailing European countries, markets are concerned over the implementation and impact of the same in the long-term.
www.angelcommodities.com
Tuesday, May 11, 2010
Gold Shines
Gold prices gain 2.5% in the last week
Spot Gold prices have gained despite dollar strength as demand for the yellow metal has increased as it is considered as the asset of last resort. Investors have become susceptible over the uncertain financial market scenario and troubles on the Euro zone front. This has dented appetite for riskier investment assets and led to rise in demand for gold as a traditional safe-haven despite a stronger dollar. We expect gold prices to trade with an upside bias in the short-term. At the same time, the dollar is expected to strengthen further. Hence, sharp gains in the yellow metal could be capped due to stronger dollar.
The Euro slumped sharply in the last few weeks as markets remained uncertain over the Greece issue. Even though the Greece has been offered a bailout by the EU and the IMF, concern over other member’s debt woes continues. Spain, Portugal, Italy and Ireland stand next in line with their debt issues. These worries lowered the appeal of the euro which touched a low of 1.2520 in the last week. On the other hand, the US dollar gained more than 3% in the last week as economic concerns in the Euro zone led to financial uncertainty. This led to demand for the low-yielding dollar as a safe-haven. The dollar also gained on the back of positive economic data which raised hopes of a rise in interest rates in the coming months.
The global economy continues to face a dilemma as on one hand markets witness a host of positive economic data announcements from the US. But on the other hand, debt issues in the Euro Zone are making investors wary over the strength of the recovery. Issues in the Euro Zone are expected to accelerate further and this will deteriorate sentiments in the financial markets. The US is witnessing a better economic scenario as companies start hiring on the back of better business prospects. The housing market in the US has also improved and led to better sentiments across global markets. But a major driver which is China has dented market sentiments further by raising interest rates in order to curb escalating growth. Higher interest rate in the fast growing economy is raising fear of slowdown after a long recession which was mainly being seen in the Western World.
Fundamental Outlook
Economic concerns in the Euro zone will continue to haunt sentiments in the financial markets. Mixed sentiments will continue to prevail as markets cope with two separate developments – 1) Positive US economic data and 2) economic worries in the Euro area. Economic data from the US is expected to be positive and that will help markets gain some strength. This positive economic data could boost hopes of a rise in interest rates in the US and lead to strength in the dollar. The dollar will also gain on the back of existing economic worries in the Euro zone. Despite the rescue package provided to Greece, markets will now question and doubt the debt situation of other Euro member nations namely, Spain, Portugal, Ireland and Italy. This ongoing financial uncertainty regarding Euro Zone will continue to provide upside to gold prices despite dollar strength as economic worries will raise demand for gold as a safe-haven.
Major economic data releases in May which will help to set the trend in the markets are Manufacturing PMI, ECB Press Conference, Unemployment Claims, US Unemployment Rate, Retail Sales Consumer Confidence and FOMC Meeting Minutes.
Spot Gold prices have gained despite dollar strength as demand for the yellow metal has increased as it is considered as the asset of last resort. Investors have become susceptible over the uncertain financial market scenario and troubles on the Euro zone front. This has dented appetite for riskier investment assets and led to rise in demand for gold as a traditional safe-haven despite a stronger dollar. We expect gold prices to trade with an upside bias in the short-term. At the same time, the dollar is expected to strengthen further. Hence, sharp gains in the yellow metal could be capped due to stronger dollar.
The Euro slumped sharply in the last few weeks as markets remained uncertain over the Greece issue. Even though the Greece has been offered a bailout by the EU and the IMF, concern over other member’s debt woes continues. Spain, Portugal, Italy and Ireland stand next in line with their debt issues. These worries lowered the appeal of the euro which touched a low of 1.2520 in the last week. On the other hand, the US dollar gained more than 3% in the last week as economic concerns in the Euro zone led to financial uncertainty. This led to demand for the low-yielding dollar as a safe-haven. The dollar also gained on the back of positive economic data which raised hopes of a rise in interest rates in the coming months.
The global economy continues to face a dilemma as on one hand markets witness a host of positive economic data announcements from the US. But on the other hand, debt issues in the Euro Zone are making investors wary over the strength of the recovery. Issues in the Euro Zone are expected to accelerate further and this will deteriorate sentiments in the financial markets. The US is witnessing a better economic scenario as companies start hiring on the back of better business prospects. The housing market in the US has also improved and led to better sentiments across global markets. But a major driver which is China has dented market sentiments further by raising interest rates in order to curb escalating growth. Higher interest rate in the fast growing economy is raising fear of slowdown after a long recession which was mainly being seen in the Western World.
Fundamental Outlook
Economic concerns in the Euro zone will continue to haunt sentiments in the financial markets. Mixed sentiments will continue to prevail as markets cope with two separate developments – 1) Positive US economic data and 2) economic worries in the Euro area. Economic data from the US is expected to be positive and that will help markets gain some strength. This positive economic data could boost hopes of a rise in interest rates in the US and lead to strength in the dollar. The dollar will also gain on the back of existing economic worries in the Euro zone. Despite the rescue package provided to Greece, markets will now question and doubt the debt situation of other Euro member nations namely, Spain, Portugal, Ireland and Italy. This ongoing financial uncertainty regarding Euro Zone will continue to provide upside to gold prices despite dollar strength as economic worries will raise demand for gold as a safe-haven.
Major economic data releases in May which will help to set the trend in the markets are Manufacturing PMI, ECB Press Conference, Unemployment Claims, US Unemployment Rate, Retail Sales Consumer Confidence and FOMC Meeting Minutes.
Subscribe to:
Comments (Atom)