Bullish Markets or Simply a Correction?
29-11-2011
The markets began on a positive note yesterday in light of uplifting reports concerning the European debt crisis, with Wall Street experiencing what can only be described as a purchasing frenzy. Markets also ended on a bullish note, halting a seven day decline, with Wall Street increasing its value between 2.5% and 3.5%.
Investor sentiment received a boost from European reports that EU leaders are about to reach an agreement on two key points.
1. The bailout fund will increase drastically. It currently stands at 400 billion Euros, and European leaders intend to increase its money supply to 1 trillion Euros.
2. European leaders also claim that they are close to hammering out a deal that will produce fiscal unity amongst the member states. Currently, only monetary policy is governed by the European Commission and Parliament and some believe that fiscal cooperation will reduce government waste and oversee government expenditures in the European periphery.
Parallel to the European debt crisis, the credit rating agency Fitch lowered the credit outlook of the United States to ‘negative’, but kept its credit rating at AAA. This indicates that if the current downward trend of the U.S. market continues, the reduction of the country’s credit rating will be inevitable. Fitch explained the ‘negative’ outlook by referring to an unmanageable sovereign debt that will soon reach 90% of GDP and high unemployment that currently stands at 9%.
Yesterday, the report of IMF involvement in Italian austerity and economic recovery was dismissed absolutely. Therefore, the uncertainty regarding the future of the Euro may indicate that any improvement against the USD or JPY may be short lived as markets continue to fluctuate.
Real estate numbers for the United States were released, coming in below analyst’s predictions at 307 thousand.
Unemployment numbers were released in Japan today, showing a rise in unemployment to 4.5%, up from 4.2% and 4.1% from the previous two months. Retail sales numbers in Japan increased sharply by 1.9%, beating expectations by more than one percentage point. The previous retail numbers from Japan showed a decline of -1.1%. These conflicting reports ensure great uncertainty regarding the Yen, and it appears trading will emulate the Dollar and in opposite correlation with the stock markets.
The Consumer Confidence Index is scheduled to be published today in the United States, with a rise to lever 43 from 39.8 widely expected.
The Forex markets began the week with gains by the major currencies against the EUR and USD, specifically the AUD and NZD which increase by 2.5%. However, towards the end of trading yesterday, the Dollar started to gain some momentum against all of the other currencies.
Today, the pair EUR/USD is expected to be traded on a short scale, taking direction from the optimism coming out of Europe. Long term however, the USD continues to deliver due to the relatively stable condition of the United States when compared to most other economies.
