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Broadgate: Market News 31/5

31 May 2012

Overview

The situation in Spanish banking system demonstrates that the debt crisis is rapidly spreading and this issue is also relevant for the EU countries with the biggest economies.  Another proof of the aforementioned statement was the result of the Italian auction on obligations’ placement. This country failed to sell the maximum planned amount of debt at the auction.  The Index of Economic Trust in the EU dropped lower than there had been forecasted. Analysts assume that the market has lost its trust in the Euro. The currency is a little oversold but the trend is absolutely clear: the prices are moving to the 10 year old figures basically to 1.1870, when the Euro was just introduced for the mass circulation. Thus people continue to withdraw their funds from their investments and savings in Euro and the trading continues in the defensive regime.

Market Review

Stocks tumbled on Wednesday as surging bond yields in Spain and Italy ratcheted up tensions in financial markets about Europe’s ability to solve its growing debt crisis.

Angst over Europe drove investors away from risky assets and into safe havens. U.S. Treasury benchmark yields fell to their lowest in at least 60 years, prices for crude fell more than 3 percent and the euro dropped below $1.24 to a 23-month low.

The S&P 500 has fallen nearly 6 percent in May, heading for its worst monthly performance since September as traders focused on Europe. However, U.S. data later in the week, including first-quarter gross domestic product and monthly payrolls, could delink Wall Street from overseas headlines.

Yields rose sharply at an Italian sale of five- and 10-year debt, and investors worried about Spain’s plans to raise new funds to shore up its banks even as borrowing costs rose there.

“You’re seeing the deterioration in Spain gain magnitude and that is worrisome because it involves a larger bailout (than Greece’s) and far more capital to alleviate banking problems,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

“Traders and long-term investors believe Europeans are working on solutions. But the ultimate question is will capital markets give them the time before a liquidity issue becomes a solvency issue.”

Adding to worries was Greece’s upcoming election, which could determine if the country will stay or not in the euro zone.

More than six issues fell on the New York Stock Exchange for every one that rose. The CBOE volatility index .VIX, a gauge of market anxiety, jumped 14.8 percent, its largest daily gain in almost three months

Commodities

Gold – Spot gold lost more than 6 percent on the month to stand nearly flat at $1,561.44 an ounce by 11.19 p.m. EDT, stretching its losing streak to a fourth month and matching a similar run in late 1999 and early 2000, when it traded below $300.

U.S. gold inched down 0.1 percent to $1,561.40

Oil – London Brent crude for July delivery was down 27 cents at $103.20 per barrel by 0422 GMT, after hitting a low of $102.90 earlier in the session. Prices were on track for a more than 13 percent loss this month, the biggest since May 2010.

U.S. crude for July delivery was down 17 cents to $87.65 per barrel. Prices were headed for a steep loss of more than 16 percent this month – the worst since late 2008

Currencies

EUR / USD – Yesterday the Euro depreciated against the US Dollar from 1.2505 to 1.2361 with further bounce to 1.2374.  Apparently this is the state of the Euro being oversold. The fixation and a little correction of the currency pair are possible around 1.2553. That will be used for accumulating short positions on Euro. The goals are 1.2250 and 1.1880.

USD / JPY – Yesterday the US Dollar depreciated against the Yen from 79.56 to 78.77. The risk of testing 78.50 approached the highest probability for the trading week. The breaking of this level might trigger the strengthening of the Japanese currency up to 77.50 with subsequent perspective of growing to 76.80. But it depends on the Bank of Japan. Everybody expects it taking the most decisive actions.

GBP / USD – Yesterday the Pound depreciated against the US Dollar from 1.5716 to 1.5474. As the crisis in Europe exacerbates the pressure on the British currency grows.  Relatively good situation in the US economy contributes to it as well. The analysts mark that the technical picture becomes more favorable for sellers. For a bit oversold British currency the fixation of profit with a light correction to 1.5620 are not excluded.

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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