European Bonds The Story
11-11-2011
Greek bonds, Italian, Spanish bonds, French – investors continue to push the envelope. Although the EUR gained on Thursday it did this after wide losses on Wednesday. Questions continue across Europe regarding the Sovereign Debt crisis for many nations as developments and rumors continues. Trading may be rather cautious today taking into consideration that it is Veterans Day in the U.S. and other remembrances will be held by several European nations. While banks will be closed in France and the States, markets will be trading. Volumes may be lighter because of this, but volumes also may be lighter because it is perceived that this weekend will produce a significant amount of news regarding political developments in Italy which will affect the economic landscape.
The GBP and AUD performed in a EUR centric mode on Thursday. Gold traded in a tight range as plenty of investors sat on the proverbial fence. Crude Oil is trading near highs and has shown signs of speculation. The most interesting aspect of Thursday’s trading day was that the Italian one year debt notes found an incredible amount of buying. This has raised suspicions that it was actually the ECB which came in through secondary markets and purchased the debt in the auctions, in order to try and stabilize Italian bond yields. Equity markets turned in mixed results across Europe and Wall Street managed to turn in a positive day of trading.
The U.S. will see the University of Michigan’s Preliminary Consumer Sentiment reading today and it carries an estimate of 61.3, which would be an increase above the last reading. However, this will be the only data brought forth today on what is essentially a holiday for the government in the States. Investors essentially will have to trade based on existing sentiment which remains fragile and taking into consideration that there may be a considerable amount of news from Europe this weekend, it must be asked what type of risk investors will be willing to hold over the next few days until the markets open again on Monday?
While the JPY finds itself inching up in strength against the USD as a safe haven play, global investors will have to judge for themselves how much risk they are willing to take with all of the question marks still surrounding Europe. While Greece has been a lynchpin in most conversations the past two years surrounding the E.U. financial problems, the addition of Italy to the landscape offers an extremely volatile dynamic. Italy is no small player in Europe. It is one of the most important economic parts of the E.U. and its potential problems are enough to scare the bravest of investors. Clarity which has been a much spoken about word over the past few months will be sought this weekend by investors.
Until then expect to see the broad markets react with a cautious tone. Forex may respond with a rather quiet day, but lower volumes and possible developments regarding the E.U. cannot be discounted. Ranges are certain to be tested today before going into the weekend.
