The Debt Saga
17-11-2011
Broad markets turned in cautious trading on Wednesday. The EUR stayed near the lower realms of its value and the GBP and AUD also remained near lows. News continuing from Europe has stirred investor sentiment in a negative manner and this is having an effect on the E.U. bond markets. Today further debt auctions will take place and Spain and France will be under the microscope as yields continue to show signs of distress. Equities in Europe declined yesterday and this was followed by losses on Wall Street. The EUR continues to be a talking point among investors as worries about contagion within a troubled Sovereign Debt market creates turbulence. While Italy has been a recent focus, the debt story now is turning towards Spain and France.
Data will be light from Europe today (excluding the crucial bond auctions taking place), the U.K. will release Retail Sales numbers, but the U.S. will bring forth a parade of results. The Philly Fed Manufacturing Index reading will lead the way, but the weekly Unemployment Claims outcome, and Building Permits and Housing Starts results will be watched too. While the USD has found backing as a safe haven asset, the EUR has found some support at these recent levels and the question investors are likely pondering is how much pressure the Single Currency can withstand over these next two days. And as the bond markets in Europe have given investors a reason to worry, the need to put assets in other places has raised the question as to where they can actually park their money.
There has been talk among some analysts that high paying dividend equities could come into favor, but with so many questions lingering about the global economy and its overall health it does not take a rocket scientist to quantify what could take place on equity markets if problems persist. Meaning that preservation remains a bulwark of investing and safe assets such as the USD and even U.S. bonds are finding favor. While equities in the U.S. have managed to gain overall during the month of October and so far in November, sentiment remains fragile.
The U.K. delivered another round of rather cautious data and news on Wednesday. BoE Governor Mervyn King spoke about the risks to the U.K. economy and the Nationwide Consumer Confidence reading late in the day provided a poor outcome. Today the Retail Sales numbers will be seen and it will be interesting to see if the GBP finds itself under a spurt of pressure if the figure comes in below the already negative minus -0.2% estimate.
The JPY remains stuck in the mud. It is trading in a consolidated range and traders perhaps could try their hand at some speculative range plays, but it should be noted that there is talk that the BoJ may be quietly supporting these current values even as investors continue to be attracted to the safe haven status of the JPY.
The broad markets including Forex continue to be trading under the weight of news flow coming from Europe’s bond market, officials, and murmurs from ratings agencies. The EUR/USD pair remains a magnate and it is likely to get plenty of attention up until the weekend.
