Italy Delivers On Promise
14-11-2011
Risk appetite may make an appearance in the equity markets today as Italy has passed it budget amendments over the weekend as promised. The EUR finished Friday on the high end of its recent value and the GBP and AUD followed it momentum upwards. Gold also turned in a rather solid round of gains and finds itself near short term highs. Wall Street turned in a positive session on Friday and this was buoyed on a better than anticipated reading from the University of Michigan’s Consumer Sentiment reading. Crude Oil continued its solid run on Friday and is approaching 100.00 USD a barrel for WTI. The JPY also continues to inch towards a stronger trajectory even as the Japanese government continues to signal they want a weak currency.
The EUR will get plenty of attention today and it should be noted that there is another Italian bond auction taking place today and its results will have an impact. There was suspicion late last week that the ECB quietly stepped into the Italian bond market hand helped stabilize its yields. While the Italian government seems to have gotten their act together temporarily large question persist long term about its ability to handle the magnitude of its borrowing. Thus the Sovereign Debt situation remains a catalyst of sentiment and barometer on risk. The formula that is tough for investors to quantify is the extent of the financial crisis that the E.U. is suffering from and trying to separate them from the confidence game that is being waged on a daily basis. Therefore while the EUR is trading well for the moment it is likely that what has actually happened is that the problems have essentially been merely pushed down the block once again. The math regarding growth and austerity and the amount of money owed by a handful of European nations is not a particularly pleasing equation when examined closely.
Today Europe will release its Industrial Production results and the estimate is minus -2.1%, which is yet another indication that Europe is struggling at best to achieve growth. The number might not have a huge impact on trading per say, but they will feed into lingering sentiment that a recession is shadowing Europe.
The GBP and AUD have continued to trade in a EUR centric mode and this is not likely to change for the foreseeable future as risk appetite is directly related to the E.U. winds which are affecting global economic outlooks. Data will be relatively light from the U.K. today. The Sterling has yet to break into a divergent pattern from the EUR and this underscores its correlation.
Gold as of this morning is trading around 1787.00 USD and it has picked up value as the EUR has done so. The value of the precious metal remains a speculative taste, but also shows that the old and time honored belief that a weaker USD means a higher value for Gold.
The broad market looks set to take on additional risk today, but investors no doubt are not standing in cement and could reverse at any given time should doubts arise about Europe again. After three solid months of hectic trading investors will welcome stability and positive news, but how long the sunshine will last is the million dollar question.
