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EU Market Outlook - ECB Speculation Draws A Crowd

Last updated 8/6/2012 1:30 AM EST (GMT -5) 0 Comments - Add your comment

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Andrew Taylor

Market Strategist, GFT

Follow @ATaylor_GFT

Top Headlines

o    The ECB speculation machine fires up again

o    Markets overlook rising Unemployment rate (8.3%) for 163k new jobs created

o    AU Job Ads -0.8% vs prev -1.2% > slightly weak lead before Thurs Employment data

o    Market Moves:

•    EUR and AUD hold gains in light trading

•     ASX2 00 off from initial highs; Nikkei powers on with strong Earnings by Toyota

•    Precious Metals, Oil and Copper hold highs ahead of European session

Equities, commodities and risk currencies all managed to hold onto their gains during the Asian session as sentiment shifted from one of bitter disappointment to renewed confidence thanks to a lifeline thrown to traders from the ECB and US jobs data on Friday.

Before the US jobs number was released, markets bought into ECB rumours in abundance on information that there may be wheeling and dealing going on behind closed doors to address Spain and Italy’s stubbornly high borrowing costs.  The path would be via the EFSF to go on a mass bond buying spree, not too dissimilar to what the markets were hoping to hear from ECB President Draghi less than 24 hours before.

The immediate positive price action has shown that traders believe Spain will be requesting a full sovereign bailout soon; this is a requirement before access to bailout funds is given. However this may prove to be a sticking point, as Spain won’t want to commit to anything without knowing the exact terms of the bailout deal. There will need to be a leap of faith at some stage by Spain for this plan to materialise but that ‘leap’ may not be as blind as many may think. Last Thursdays joint meeting between Italy and Spain  saw an unusual lack of information post conference, which adds to the speculation that deals are being done out of the public eye.

The US jobs data showed that markets were willing to look past the slight increase in the Unemployment rate from 8.2% to 8.3% and instead preferred to herald the victory of 163k new jobs being created. In the grand scheme of things this number will need to keep improving but for now markets have had to adjust from their low expectation set positions.

Bernanke is scheduled to speak today but is not expected to include anything of monetary policy or market value. The next appearance at Jackson Hole is however a different story.

Outlook

The European session will be the first real test of how markets have digested Friday’s events over the weekend. The highs reached Friday look set to be tested again with the only real question being if markets need to pull back to find its support before a run up that hunts stops. Traders need to be wary that these positive moves on speculation of action can be reversed just as quickly, so keep an eye on headlines along with Spain and Italy’s bond yields for guidance. 

Economic Events to watch:

Note: Times are in GMT

0700 UK     Jul Halifax House Price Index

0800 UK     Jul UK monthly car registrations figures

2301 UK     Jul BRC-KPMG Retail Sales Monitor

For more intraday analysis and trade ideas, follow me on twitter @ATaylor_GFT

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About The Author

Andrew Taylor's financial markets career started in 1991 in the interbank FX market,where he worked for one of the largest banks in Australia. Andrew then went on to trade on behalf of some of the biggest global banks, working across five of the world's major financial hubs: Sydney, New York, Singapore, Auckland, and Tokyo.

His more than 20 years of experience spans market borders and asset classes, covering global equities, commodities, options and futures. Andrew's wealth of trading experience and ability to communicate with traders of all levels has put him in demand as a first point of contact for clients and the media alike when seeking information and guidance.