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Broadgate: Market News 5/7

5 July 2012

European stocks ended slightly lower on Wednesday in extremely thin trading volumes as U.S. markets remained closed for a holiday, with investors taking a breather after a sharp three-day rally and ahead of the European Central Bank policy meeting.

The ECB is widely expected to cut interest rates to a record low of 0.75 percent on Thursday to support the region’s frail economy. A potential cut in the deposit rate to as low as zero could encourage banks to lend more to each other.

“The market has already anticipated a cut in ECB interest rates that should be announced tomorrow. At this point, we think that the upside potential in the short term is limited,” Barclays France fund manager Philippe Cohen said.

The FTSEurofirst 300 index of top European shares closed 0.1 percent lower at 1,045.63 points in volumes representing only slightly more than half a an average session of the past three months, and the lowest volume since last December’s holiday week.

The euro zone’s blue chip Euro STOXX 50 index ended 0.4 percent lower at 2,312.41 points, following a near 8 percent jump in three sessions.

But despite its recent surge, the benchmark euro zone index – which was technically ‘overbought’ on Wednesday – has failed to break above two key resistance levels: its 200-day moving average as well as the 50 percent retracement of the index’s 22 percent slump from mid-March to early June.

A number of traders and fund managers have been waiting for the index to pierce above these two resistance levels before jumping back in.

“As long as we stay below these two lines, this market remains in a corrective mode,” a Paris-based trader said.

“After such a rally over the past week, clients are taking a bit of profit off the table, as there is no positive catalyst in sight beyond the ECB. Friday’s non-farm payrolls don’t really look sexy.”

According to a Reuters survey of economists, U.S. employers are expected to have added 90,000 new workers to their payrolls last month, and a lower-than-expected figure to could spark a bout of profit taking, traders said.

Around Europe, UK’s FTSE 100 index ended down 0.1 percent, Germany’s DAX index down 0.2 percent, and France’s CAC 40 down 0.1 percent.

The losses were bigger in volatile Spanish and Italian markets, with Madrid’s IBEX down 0.7 percent and Milan’s FTSE MIB down 0.8 percent.

Investors were cautious ahead of a key sentiment test on Thursday when Spain goes to the debt market for the first time since last week’s EU summit, selling up to 3 billion euros of three bonds maturing in 2015, 2016 and 2022.

Spanish bonds have benefited from the summit agreement to allow euro zone rescue funds to recapitalize the region’s banks directly, though plans for the fund to buy bonds in the secondary market are being opposed by Finland, highlighting implementation risks.

Banking stocks featured among the biggest losers on Wednesday, trimming recent lofty gains. Intesa Sanpaolo fell 3.1 percent, BBVA dropped 1 percent and BNP Paribas shed 0.6 percent.

Commodities

Brent futures were steady below $100 a barrel in early Asian trade on Thursday as fresh evidence of weakness in European economies triggered demand concerns, even as investors kept up hopes for stimulus measures to counter fragile global growth.

Brent crude edged 12 cents higher to trade at $99.89 per dollar at 10.45 p.m. EDT on Wednesday.

U.S. crude futures were trading 66 cents lower at $87, after dropping to a session low of $86.50 on expectations of ample supply in the world’s biggest consumer.

Gold edged up on Thursday, shrugging off a firm dollar, ahead of an expected rate cut by the European Central Bank that should boost liquidity and enhance bullion’s appeal.

Spot gold edged up $1.16 to $1,616.29 an ounce by 11.28 p.m. EDT on Wednesday. U.S. gold futures contract for August delivery inched down 0.3 percent to $1,617.10.

Currencies

The euro wallowed near one-week lows on Thursday, struggling to find any traction ahead of a widely expected interest rate cut by the European Central Bank.

The single currency traded at $1.2522 early in Asia, having fallen around 0.7 percent on Wednesday in trading made subdued by a U.S. holiday. Surveys showing all of Europe’s biggest economies are in recession or heading there added to the gloom.

The euro also lost ground on the yen, slipping to 100.06 from Wednesday’s session high of 100.65. It hit a fresh all-time low on the New Zealand currency at NZ$1.5541. Softness in the single currency saw the dollar index bounce to 82.199, off Friday’s trough of 81.430.

The Australian dollar, already lifted by upbeat retail sales data on Wednesday, was at $1.0270, having climbed as high as $1.0320 — its best level since early May

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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