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Broadgate: Market News 23/11

23 November 2012

Asian shares rose on Friday and were on course for a weekly gain of more than 2.5 percent, their best in two months, after manufacturing surveys from the world’s biggest economies raised hopes that the global growth outlook is improving at last.

The euro was also enjoying a positive week, despite data on Thursday pointing to the euro zone sliding into its deepest recession since 2009, with the currency standing up more than 1 percent from last Friday’s close on optimism that a funding deal for debt-choked Greece will ultimately be agreed.

“Eventually they will reach a deal,” said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore. “Whether they reach a deal on Monday remains questionable.”

Financial bookmakers called Europe’s major stock indexes to open flat or slightly higher, while S&P 500 index futures firmed 0.3 percent, suggesting small gains when Wall Street trading resumes for a shortened trading day later.

MSCI’s broadest index of Asia Pacific shares outside Japan rose 0.7 percent, with shares in South Korea and Hong Kong both rising more than 0.5 percent while Australian stocks were flat.

The MSCI index was up around 2.6 percent on the week, its best weekly performance since mid-September.

Activity generally was subdued, with Japanese financial markets closed for a holiday on Friday following the U.S. shutdown for Thanksgiving on Thursday.

Confidence in the global economic outlook was lifted on Thursday by the HSBC flash manufacturing Purchasing Managers Index (PMI) for China, which showed expansion in the factory sector accelerating for the first time in 13 months.

That followed Wednesday’s report showing U.S. manufacturing grew in November at its quickest pace in five months, indicating strong economic growth in the fourth quarter, and helped sustain a rally in riskier assets such as stocks and commodities.

PMI data on the manufacturing and services sectors in Europe’s two biggest economies, Germany and France, also reassured investors on Thursday by revealing that conditions had at least not worsened in November, although both economies were still contracting.

However, the PMI numbers for the wider euro zone remained extremely weak, pointing to its recession-hit economy shrinking by about 0.5 percent in the current quarter – its sharpest contraction since the first quarter of 2009.

GREEK RISKS

The euro was steady against the dollar around $1.2886, within sight of Thursday’s three-week high of $1.2899.

The single currency was boosted by expectations that international lenders will soon reach a deal to release the next tranche of aid for Greece, although some market players remained cautious about the risks still posed by Europe’s debt crisis.

“Greek exit (from the euro zone) is very unlikely this weekend, but I don’t want to go into this weekend holding any risky positions,” said RBS strategist Greg Gibbs in a note.

“In fact, while much ink has been spilled on the U.S. fiscal cliff, the bigger risk is still cracks appearing again in Europe.”

The euro dipped 0.1 percent versus the yen to 106 yen, backing away from a six-and-a-half-month high of 106.585 yen set on Thursday.

The dollar eased 0.2 percent versus the yen to 82.25 yen, pulling away from Thursday’s high of 82.84 yen, the dollar’s strongest level since early April.

The dollar has climbed around 3.5 percent against the yen in the last two weeks, with the yen weakened by market expectations that the likely next Japanese government would push the Bank of Japan to implement more drastic monetary stimulus.

Oil dipped, with the prospect of weak demand from recession-mired Europe and the easing of supply concerns following the ceasefire in Gaza weighing on prices, although Brent crude remained up more than 1 percent on the week.

“I think what we’re seeing in oil markets at the moment is a re-pricing after the ceasefire in the Gaza Strip,” said Ben Le Brun, a market analyst at OptionsXpress.

Brent slipped 0.2 percent to $110.36 a barrel and U.S. benchmark crude eased a similar percentage to $87.22.

Copper also eased 0.2 percent to just above 7,700 a tonne, but remained up more than 1 percent on the week.

Gold was flat around $1,730 an ounce.

Currencies

The yen clawed higher against the dollar on Friday, getting some respite after having fallen sharply over the past two weeks on expectations of more forceful monetary easing in Japan.

The euro also strengthened against the dollar, supported by expectations that international lenders will soon reach a deal to release the next tranche of aid for cash-strapped Greece.

The dollar eased 0.2 percent versus the yen to 82.28 yen, pulling away from Thursday’s 7-1/2-month high of 82.84 yen, the dollar’s strongest level since early April.

The dollar has climbed roughly 3.5 percent against the yen in the last two weeks, with the yen weakened by expectations that a likely new Japanese government in December would push the Bank of Japan to implement more drastic monetary stimulus.

Shinzo Abe, the leader of Japan’s opposition Liberal Democratic Party (LDP), which is tipped to win a general election on December 16, has called for measures such as having the BOJ buy bonds issued specifically to fund public works projects and pushing short-term interest rates below zero.

His party’s policy platform calls for setting a 2 percent inflation target, and seeks to ensure that the BOJ will pursue it vigorously with a possible revision to legislation that guarantees the central bank’s independence.

With the central bank’s independence having become a topic in Japan ahead of the election, the yen still looks vulnerable, said Rob Ryan, a strategist for RBS in Singapore.

“I think the LDP is going to have to continue to sound more aggressive without sounding ridiculous,” Ryan said. “So the threat will always be there, ahead of the election that we get comments that send the yen weaker.”

The yen also stabilized against the euro. The single currency eased 0.1 percent versus the yen to 106.09 yen, staying below a seven-month high of 106.585 yen struck on Thursday.

GREECE DEAL

Against the dollar, the euro edged up 0.1 percent to $1.2891.

The euro has gained a boost after German Chancellor Angela Merkel said on Wednesday that an agreement to release aid to Athens was possible next Monday.

Expectations for a deal on Greece on Monday, when the country’s international creditors will hold another round of talks, have been buttressed further by comments from Olli Rehn, the European commissioner for economic affairs.

Rehn said Greece has taken all the steps necessary to secure its next tranche of aid and euro zone finance ministers should be able to sign off definitively on the assistance on Monday.

Still, analysts said some caution may be in order, given disagreements among Greece’s international lenders.

“Eventually they will reach a deal, whether they reach a deal on Monday remains questionable,” said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore.

Germany has led resistance within the euro zone to calls from the International Monetary Fund and others to accept losses on their Greek debt holdings.

Later on Friday, the euro could take its cues from data on German business morale. The Ifo business climate index, a key barometer of economic health in Germany, is seen slipping to 99.5 in November, down from 100.0 last month, according to a Reuters survey.

Source:  Reuters.com

The information set out herein has been obtained from various public sources and is by way of information only. Broadgate Financial can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

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