This weekend’s G7 meeting in Canada appears to have been ignored by the markets as traders and investors suffered a severe case of the jitters last week with equities continuing to fall along with commodities and the Euro. This latest crisis of confidence has seen investors rush into top rated Treasuries resulting in the yield on the two year Schatz falling to a new record low of 0.986%, which is well below the ECB’s target which was held at 1% last week. In the UK the yield on 10 year Gilts also dipped, moving from 3.96% to 3.842% with the 3 year swap also hitting a new low at 2.14%. The latter prompted by the BOE’s (Bank of England) announcement of its proposed conclusion to quantitative easing. The move away from so called “risky assets” also saw commodities trading lower as the US dollar strengthened. The Euro continued to fall against both the Dollar and the Yen in overnight trading in Asia as G7 ministers failed to offer any realistic plans to help Greece out of its debt woes. Although European equity markets have opened in a slightly more positive frame of mind Jean Claude Trichet’s words at the G7 on Saturday that the ECB expects “the Greek government will take all necessary decisions” to cut its debt burden, while the ECB “will continue to monitor closely” these steps has only elicited a lukewarm rally in the Euro this morning. Indeed the CME (Chicago Mercantile Exchange) confirmed earlier today that speculators have taken net short positions in the euro from 39,500 contracts to 43,700 equivalent to $7.6bn. Meanwhile Friday the dollar index touched the significant 80 price handle, just breaking the 200 day moving average.
The British Pound too tumbled against the US dollar on the US jobs data and Eurozone sovereign debt problems as well as the UK’s own debt problems and uncertainty ahead of the general election.
The Aussie ended little changed in Asia with government bonds ending mixed as regional markets paused while waiting for a lead from both the European & US markets later today.
This morning has seen sterling, the euro and US dollar marginally lower against the Japanese Yen but with an absence of fundamental news for today (and relatively little tier one news for the rest of the week), traders will continue to remain focused on the debt problems bedevilling the Club med countries.
As mentioned whilst equities have managed to regain some poise in this morning’s trading following Friday’s late rally on Wall Street, technically most charts (such as the FTSE & DAX) still look bearish with wide spread downbars & high volume indicative of heavy selling and until we see a narrowing of spread coupled with stopping volume this picture will continue.
What to watch this week? On Monday in Japan we have the December trade balance figures coupled with money supply & bank lending as well as the EZ16 February Sentix Investor Confidence numbers. Tuesday in the UK we have the RICS house price numbers, retail sales coupled with German and UK Trade Balance Figures along with US Wholesale Inventories. Wednesday’s key numbers are the Japanese machine orders, domestic CGPI and for the UK Industrial Production for December along with US trade balance and the BOE quarterly inflation report. With a national holiday in Japan on Thursday the main release to note is the US business inventories and January retail sales. The week rounds off with Japan’s consumer confidence, German GDP and US UOM inflation report.
Overall with traders and investors fearful we can expect to see further sheltering in quality Treasuries with a consequent flattening of yield curves as shorter dates move down towards zero. However, whilst the dollar index looks mildly bullish at present with the last three weeks of wide spread up candles we could see a temporary pause this week as we hover at the 200 week moving average in the 80 price handle with a potential reversal in the some of the majors as a result. In other words traders and investors undecided as to whether the mood is risk on or risk off.
Good luck & good trading.
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