Market Review – 13/07/2010 21:54 GMTEuro rallies to a fresh two-month high on solid Greek bond auction and strong U.S. corporate earningsAlthough the single currency rose briefly to 1.2615 in Asian opening on improved risk appetites as Alcoa, U.S. largest aluminum producer, posted a higher-than-expected second quarter profit, the pair nose-dived to an intra-day low of 1.2522 after Moody’s downgraded Portugal by 2-notches to A1 from AA2. Moody said Portugal’s growth is likely to remain weak unless structural reforms bear fruit in medium to long term. Later, buying interest at said 1.2522 low lifted the pair up and the single currency rallied to a fresh two-month high of 1.2739 in NY mid-day on renewed risk appetites on solid Greek bond auction together with the rally in global stock markets.
Greece sold 1.625 billion euros of six-month T-bills at a yield slightly cheaper than the 5.0% it pays to borrow from EU/IMF. The solid auction sales highlighted Greece still has some way to go in convincing investors and eased concerns over Europe debt crisis. Cross buying in euro supported the single currency as eur/jpy surged fm 110.68 to 112.94, eur/gbp rose sharply from 0.8317 to 0.8392 and eur/chf strengthened from 1.3310 to 1.3423.
Dow Jones index rose strongly and closed the day up by 147 points, or 1.44% to 10363 whilst FTSE-100, CAC-40 and DAX gained by 2.01%, 1.96% and 1.87% respectively.
In addition, EU’s Reynders said EU banks stress tests will be published in a consolidated version. He indicated EU Finance Ministers agreed on new negotiating mandate on banking supervision and will discuss bank tax, transaction tax on Septmeber 7. EU’s Rehn said he is confident that EU stress tests will give clear picture of resilience of Bank system and EU bank system is strong and resilient. Rehn added EU countries should have funds for recapitalisation.
Although the British pound dropped in tandem with euro from 1.5047 to 1.4965 in European morning, cable then rebounded from there to 1.5118 on talk of the crown prince of Abu Dhabi is considering investing BP n later extended intra-day euro-led strong rise to 1.5192 in NY morning due to the rally in global stock markets. Cable was supported by U.K. Inflation figures in June, as core consumer inflation rose by 3.1% versus the expectation of 2.8% and above 2.9% in May.
The greenback fell against the Japanese Yen initially from 88.87 to 88.47 in Asia on renewed fear of tightening by PBOC. Later, although the greenback rebounded to 88.82 in European morning on short-covering, the pair then fell sharply to an intra-day low of 88.02 in NY morning before rebounding strongly due to the rally in U.S. and European stocks.
In other news, Kansas City Federal Reserve Bank President Thomas Hoening said that the U.S. economic recovery is on track despite some setbacks and the central bank shud take no additional actions to encourage economic growth.
In economic front, German and eurozone ZEW index came in at 21.2 and 10.7 respectively, well below the economists’ forecast of 25.0 and 18.8. U.K. June CPI rose by 0.1% m/m and 3.2% y/y, the lowest since February, whilst RPI increased by 0.2% m/m and 5.0% y/y. U.S. federal budget came in at $68.42 billion deficit in June 2010, compared to the economists’ forecast of $69.5 billion and the reading of $94.33 billion in June 2009.
Economic data to be released on Wednesday include: New Zealand Retail sales, Australia Westpac consumer confidence, Japan BoJ Monetary Policy Meeting, U.K. Nationwide Consumer Confidence, Average earnings 3mths, ILO unemployment rate, Claimant count, EU Industrial production, HICP final, U.S. Export price, Import price (Jun), Retail sales, Retail sales less auto, Business inventories and Minutes of FOMC Meeting.
