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EU Market Outlook - Markets Adjust To A World Flood With Dollars

Last updated 9/17/2012 2:03 AM EST (GMT -5) 0 Comments - Add your comment

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Andrew Taylor

Market Strategist, GFT

Follow @ATaylor_GFT

Top Headlines

o    Easing euphoria topping out for now > but will be back

o    RBA shows up to 23 Central Banks hold AUD as a reserve

o    Markets looking to Spain to trigger OMT

Market Moves

o    USD holds its own

o    Asia: Shanghai Composite down well lower

o    Gold, Silver and Oil remain in tight range; Copper drifts lower

The Asian session showed real cracks in the Risk-On armour as traders began to feel the weight of an overbought market. In reality apart from the initial spike higher in equities post Bernanke’s plan, traders seem a little lost wondering “how much should we be actually pricing into risk markets?” and what makes this answer difficult to attain is the Fed Chairman’s use of the term ‘open-ended’ to a negative experience.

Europe slipped into the background last week, which I am sure policy makers were more than happy with but this won’t be for long as the euphoria of the Feds stimulus subsides and the implementation of the ECB’s plan faces definite challenges. Since the ECB unveiled its targeted bond buying plan, the yields of both Spain and Italy have reduced to levels that give sovereigns a fighting chance in the near time. This has made actions by the Spanish Prime Minister Rajoy very interesting to watch as Draghi’s plan has bought Rajoy some time to see what wiggle room he has in negotiating terms ahead of an imminent full sovereign bailout. It is a dance that Rajoy knows he must participate in and will have studied those that have fallen before him on the best course of action to achieve optimum results for Spain in such a sobering situation.

Interesting figures released by the Reserve Bank of Australia showed that as many as 23 Central Banks around the world are holding AUD as part of their reserves. The information is no surprise given the offshore demand for Australian government owned assets which sits around the 80% of foreign ownership level. Concerns arise, as we have seen recently with China’s slowdown in demand. This saw commodity prices fall but the currency remain elevated squeezing the bottom line of Australian miners with no offset in AUD. The RBA minutes are out tomorrow to help with policy guessing

Outlook

Today will see equities open lower, which will worry some in power but in reality will just be a readjustment from an overshoot on optimism (The real concerns will come when the markets lose faith in this recent round of expensive easing – which aint too far away). For this reason we should see equities move lower searching a good level of support to potential take a run higher in the next few days

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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.