E.U. Saga Is The Key

The broad markets experienced a fairly wild ride on Tuesday as the day began with distressing rumors surrounding some European banks and liquidity problems. The EUR suffered in early trading, but did manage to find firmer ground as the day progressed. This may have come about because of a pronouncement from the E.U. that they are putting together a plan to help banks and are taking into consideration ‘bad bank’ structural help. On the other hand, Italy had their bonds downgraded late in the evening by Moody’s and Spain admitted that they will have a difficult time meeting their predicted growth rates. Greece remains a talking point, but the worry is clearly not only Greece now, and it amounts to a widespread European predicament.

The GBP and AUD also found some firmer ground on Tuesday, but it remains to be seen if this is a sustainable movement or merely the gyrations within new ranges that are being established as the ‘new economic perspective’ is adjusted to. Gold found itself being pushed around and as of this morning finds itself around 1627.00 USD. The precious metal remains locked in a volatile consolidated tantrum. Yesterday’s economic data provided little cheer for global investors as the U.K. produced its Construction PMI which came in below expectations with a result of 50.1. The U.S. produced its Factory Orders numbers and it too was worse than expected as it turned in an outcome of minus -0.2% and the previous month’s total was revised downward. Today the U.K. will release its Services PMI reading, Europe will publish Final GDP numbers, and the States will see the ADP Non Farm Employment Change and ISM Non Manufacturing PMI results. It must be pointed out that tomorrow the ECB is on the calendar with their monthly monetary policy statement and this could provide fireworks.

The E.U. is starting to face stiff headwinds not only because of austerity measures which have come about to meet financial obligations among troubled nations, but its growth outlook remains somewhat grim. The ECB did raise their interest rate as the storm was emerging before them, this as the Sovereign Debt situation was more than known, now it is time to see if the ECB admits that it may have made a mistake and need to change their interest rate. The ECB may not lower its interest rate tomorrow, but certainly investors will be looking for insight from President Trichet during his press conference.

On the other side of the Atlantic, Wall Street began the day’s trading with steep losses once again, but these were mitigated in later stages and in fact the losses disappeared as the major indexes managed gains as the day came to an end. The gains made during the last hour of trading were large and it will be of interest to watch the European bourses today and how the American market opens. Caution remains a strong sentiment and even though the Dow Jones, S&P, and NASDAQ all managed better outcomes yesterday, they on a whole are still suspect in the eyes of most investors.

The JPY remained locked in range trading on Tuesday. The Commodity markets essentially were flat as they started off weaker but mirrored some glimmers of hope coming into the broad markets later. The question going into today’s Forex sessions and other markets is how investors will express their rather fragile footing after a taste for risk appetite did emerge. Optimism may prove short lived. News flow continues to be a huge focus and the European saga holds the key in many respects.