July 1, 2013

Weekly Market Analysis by www.currenciesdirect.com

Always keeping you informed for the week ahead

Equities move higher in Europe and USA

June 30th, 2013
Welcome to your weekly market analysis email from Currencies Direct where you can stay one step ahead of your friends on the latest news and reviews of the financial markets. Our aim is to provide you with an easily digestible weekly update of how the financial market is performing using the expertise of your dealers who make it their sole aim to keep on top of the market movements.

USD

As the markets are over reliant on fast and easy money it is not unusual for a kneejerk reaction to occur when the taps are turned off. This negative sentiment hit Chinese stocks for a second day at the beginning of last week as the Shanghai composite lost another 0.2%(from a low of 6%) as global fears of a fall in growth alongside an apparent credit crisis from China start to become very real. As China’s demand for raw materials continues to falter, it is likely commodity currencies, such as AUD and ZAR, will continue to take the hit. It wasn’t until last Thursday that risk appetite returned to the markets. Equities moved higher in both Europe and the US following comforting comments from Central Bank members at the ECB and the FED. Mario Draghi along with other ECB members stated that an “exit” from current policy is distant. In addition comments from the US came someway to easing fears of a near term tapering of stimulus. In addition China’s interbank rates eased reducing tension. On the macroeconomic data front, US durable goods data came in better than expected at 3.6% against the expectation of a 3% number and in addition US housing data came out in line with expectations. Initial jobless claims in the US declined last week, according to data released by the Department of Labour. According to the figures, the number of people who applied for unemployment fell by 9,000 to 346,000 in June which is in line with the consensus. The continued good run in US economic data raises the expectations that the Federal Reserve will look to taper monetary easing by September, although we will also need to see continued strength in the labour market. The fact that the markets are looking to US data as an indicator for the timing of the Fed’s tapering is raising uncertainty in the markets and volatility. The USD is gaining strength on the back of the good numbers but the main focus will be on next week’s non-farm payroll data.

GBP

In Britain, new figures suggested that the UK never suffered a double-dip recession in 2012 but suffered a deeper collapse in output following the global financial crisis than previously thought. The new data shows that the economy is even further away from a full recovery. The Office for National Statistics had previously suggested that the economy shrank by 0.1% between the last quarter of 2011 and the first quarter of 2012 but has now decided last year that growth was flat. The ONS said, however, that the first post-crunch recession in 2008/2009 was deeper than first estimated, meaning that economic output is now 3.9% lower than its pre-crash peak, compared with a previous estimate of 2.6%. Mark Carney takes over from Sir Mervyn King on Monday and he will be under pressure to take more action than his predecessor. Despite the impact of the global financial crisis, UK has shown considerable improvement suggesting that growth in Q2 will likely be much stronger. Therefore the currency markets were torn between trading the disappointing past or the promising future. Cable slid to a low of 1.5265 in the aftermath of the news, but has since stabilized just below the 1.5300 figure as traders await the start of North American trade.

EUR

Last week EU finance ministers thrashed out a deal in relation to failing banks making it clear that “shareholders and creditors are liable first and foremost” and this move pushes the Euro area one step closer towards a euro banking union. In yet another European meeting, the EU leaders agreed on new steps to fight youth unemployment and promote lending to small business after deals on banking resolution and the long-term EU budget gave their summit a much needed lift. The 27 leaders resolved to spend 6 billion euros over the next two years to support job creation, training and apprenticeships for young people. Leaders also approved plans for the European Investment Bank to lend hundreds of billions of euros to small and medium-sized enterprises particularly in southern EU states where bank finance has largely dried up due to the Euro zone’s debt crisis. In other news out of the Euro Zone, businesses sentiment improved in June showing their best reading in over a year. Despite the confidence indices are still in negative territory, many parts of the economy saw an improvement.

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