Caution Flags Being Waved

The outcome from the French and German meeting in Paris proved largely ineffective on Tuesday. Investors were not treated to anything substantive. There was a complete negation for any type of unified Eurobond and the only thing offered was talk about a greater European government which would oversee finances of all E.U. nations (which will no doubt prove hard to accomplish). Investors were left shrugging their shoulders and promptly began to produce gradual declines within equities. Germany also released their Prelim GDP number on Tuesday and it disappointed with a result of 0.1%, which missed the estimated gain of 0.5%. The ugly economic facts seem to be seeping their way deeper into investor sentiment as they continue to take on defensive stances with the belief that another downturn is waiting around the corner. Perhaps it is good that the calendar is into the heart of August when many investors are on holiday. Equity markets will be the lynchpin for trading today and they will continue to muster their impetus from questions which do not have much in the way of ‘happy’ answers, unless you are a long term value investor.

Gold continued to inch its way higher on Tuesday showing little desire to come off of its high plateaus and the precious metal seems poised to react if further caution continues to boil. Gold as of this morning is around 1786.00 USD per ounce. Crude Oil Inventories data will come from the U.S. today and the commodity continues to be a barometer of economic prospects. Crude has found some consolidation the past couple of days, but appears to be facing headwinds.

The EUR lost limited ground to the USD, while the GBP and AUD largely range traded as a shadow of caution shrouded the Forex markets. The EUR/USD has performed in an absolute remarkable rangebound manner taking into consideration the amount of dirt thrown about due to the Sovereign Debt crisis in Europe and concerns regarding its financial institutions – notably banking. The counterweight for the EUR continues to be the hints and belief that the Federal Reserve in U.S. is considering another round of quantitative easing in order to battle what is becoming an obviously challenging economic environment. Both Europe and the U.S. have proven to offer little in the way of evidence that they are going to be able to achieve anything more than very lackluster growth. It stands to reason that the markets are largely bracing themselves for what may become a rather treacherous September and October, particular if third quarter reports offer little in the way of inspiration from the corporate front. Until then official government data will be the focus and like yesterday’s GDP results from Germany proved – not all is wine and roses.

Traders may be tempted to take advantage of what appears to be ranging Forex values. However they must stay alert for sudden bursts of news such as additional political ‘speak’ as officials play their parts in the ‘Confidence Game’.  Since 2008 investors have had to deal with the growing importance of the political sphere in the world of finance, and the increasing amount of government policies and regulations have performed little in the way of benefits for the free markets.

Tomorrow there will be some relevant data. The Retail Sales numbers will come from the U.K. and the States will release a host of reports including CPI, Existing Home Sales, the Philly Fed Manufacturing Index, and weekly Unemployment Claims.

The crux of market action will continue to be stirred by Wall Street. Investors have reacted in tandem with the gyrations from the major indexes the past week and a half. Yesterday’s downturn will certainly have the caution flags waving for the early trading sessions today.