Though global stock market remained stable, but overall it was another bad end to the week with hardly any positive news for the global financial market. US Dollar was the beneficiary enjoying safe haven status that continued to make gains on back of Euro-zone weakness hitting 22-month high versus Euro, as Euro hit the lows to briefly test and break 1.25 to close at 1.2515.
Gold traded in wide range between $ 1599 - $ 1532.30, as investors were trying to determine the outcome of economic uncertainty to close at $ 1572. European bond and CDS came under pressure, as European policy makers remained divided over issues.
The European leaders gathering last week could not bring any respite, as no progress was made over debt crisis nor any commitment was made to prevent Greece form quitting the European bloc after the comments made by the Greece Prime Minister that risk of Greece leaving EURO is real. Although. EU ministers showed their support wanting Greece to stay in the bloc, but are unwilling to compromise on austerity measures to give boost to the growth. IMF chief Lagarde’s statement that Euro-zone is at the epicenter of the crisis further dented the sentiment.
Uncertainty dominated as European lenders disagreed on floating ECB bond. Hollande and other leaders want ECB to take action, but Germany is in no mood to consider Eurobond option.
Greece exit looks unavoidable and break-up will definitely be disaster that will have contagion effect, which means Spain, Italy and France can immediately be pulled into hot water and therefore another or 3rd LTRO is most likely to be announced. Europe is surely heading for turbulent months.
Overall, Europe is under severe pressure, last week’s European economic data was worrying, as its Purchasing Managers Index data (PMI) for the month of May fell to 45, lowest since June 2009 indicating that recession is deeper than expectation.
In another development, Spain’s troubled banks are desperately seeking liquidity injection and despite few injections to its banks S&P downgraded Spainish banks that weighed on Euro.
European currency that fell over 15 pct since last 13-months is likely to stay soft until Greece election due on June 17 and bad economic number could further push Euro further down.
So preferred strategy for the coming week is to pick the top of the range and sell the currency, because normally any currency that moves excessively on one side is due for correction, but despite long weekend due to Memorial Day holiday in USA on Monday (Today), Euro closed near 22-months low, which is not a healthy sign for the Euro-zone currency. However, a nod from Germany’s Angela Merkel to allow ECB to launch Eurobond will give boost to EURO that can surge by 300 pips.
On Monday, Asian and European market will remain active, but US market will be closed due to Memorial Day. German Consumer Price Index (CPI) expected at 2.1 pct will be keenly watched. On Tuesday, there are few economic data announcement due to be released in UK, Germany and USA but is not likely to make big impact on the market. On Wednesday, European and US data may give some idea about the economic activity in the two continents but are not the market mover. On Thursday, UK’s Nationwide Hosing Price data, which is considered a sensitive data in terms of value of the house price that gives hint of housing movement in UK, a higher number is considered positive. At the same time German Statistic Office will release Unemployment change data that will provide some idea about economic growth Deutschland and Friday, will be busy day, Germany & euro-zone will be announcing Purchasing Managers Index that will provide business condition in the manufacturing sector linked to GDP. Already around 46, which is considered low, as result above 50 pct is require for a healthy economy. However, all eyes will on USA for the release of 111- economic data of which, Non Farm Payroll and Unemployment data will be the key that will prove more clues about the performance of US economy and guidance about next US monetary policy.
EurO & GoLD RalLY tO ExHausT MaY 21-25