Risk Appetite Plate Full
17-10-2011
Risk appetite continued to show some bite on Friday as the EUR, GBP, and AUD all managed to sustain and add to their recent highs. Across the Atlantic Wall Street also proved that it could maintain its momentum and added to a good week’s performance. While cynics are still looking at the European financial situation and pointing to unresolved issues, some investors are taking advantage of better values in the equities and currencies that have seen lower depths. The argument about short term versus long term trading is nothing to be sneezed at and for now those willing to take on risk in the short term have been able to profit. While many questions certainly remain unanswered and their prospective results are not clear, going into this week’s trading risk appetite will remain at the forefront and continue to test what have been troubling waters.
Data from the States on Friday was mixed as Retail Sales turned in a better number than anticipated, but the Consumer Sentiment reading from the University of Michigan was rather dismal. Today the Empire State Manufacturing Index marks will be published and this will prove interesting because the manufacturing indexes have been rather negative the last few months and investors who have stoked the flames of risk appetite will be hoping for some additional cheer. Tomorrow the States will be relatively quiet with data, but on Wednesday housing statistics will begin and later this week the Philly Fed Manufacturing Index will underscore today’s Empire State report.
Europe remains the fulcrum of attention for global investors including those in the States. The E.U. has done a nice job of guiding its ship through unsteady currents and this has certainly added to confidence among traders in the short term. However a huge amount of money remains on the sidelines as investors await next weekend’s results from the scheduled summit among E.U. officials. What has been promised is a comprehensive plan that will alleviate the fiscal woes of banks and the fear of liquidity problems among financial institutions. Whether that is achieved or not remains a critical lynchpin, and while traders have been able to increase their risk appetite the past few trading sessions, it remains to be seen what is around the corner.
Tomorrow the German ZEW Economic Sentiment report is on the calendar. The U.K. will bring forth inflation numbers on Tuesday also. The GBP has traded in lock step with the EUR under the prevailing risk appetite scenario and this does not look like it will change immediately. While the U.K. economy has been struggling like its counterparts, the difference in policies between the BoE and ECB are striking and at some point traders may expect some type of divergence between the Sterling and Single Currency.
The JPY is still at the weaker side of its strong range and it will be of keen interest to see if the Japanese currency moves back to its stronger values soon. The AUD has done remarkably well the past week as risk appetite has been in full force. While questions are aplenty regarding the prospects for the global economy and commodity demand the Australian currency has added value under the perception that Europe will somehow fix what ails it.
The broad markets have fed upon a steady diet of optimism the past week and it will be of interest to see how long traders continue to step up to the plate.
