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Market Highlights:
- Overnight Data Pushes, then Pulls
- EUR vs. USD
- Fitch Warns UK on Rating
Overnight Data Pushes, then Pulls
The pick-up in risk that pushed U.S. stock markets to a significant gain saw the rally slowly dwindle away as Asian equities failed to sustain the upbeat tone. While marts in the Far East did manage to finish their respective trading sessions in positive territory, they closed at levels which were well off their intraday highs. Picking up from where Asia left off, European equity markets have swung between gains and losses a number of times as market participants fight to figure out whether or not the demand for riskier asset classes will persist. Weighing negatively on the risk parade, stocks pared gains off the back of worst-than-expected investor confidence data released in Germany. As Europe’s largest economic zone, German ZEW figures for November dropped to 51.1 after a reading of 56 earlier in October. As a gauge that intends to forecast economic developments over a subsequent six-month period, analysts expected this latest round of ZEW data to ring in with a reading of 55. Nevertheless, despite the poor economic release in Germany, fantastic earnings data from HSBC Plc. helped to offset a good chunk of negativity that was seen throughout London trading. Shares of HSBC soared over 4% as third quarter profit from the UK’s biggest bank saw “significant” improvement versus statistics released a year prior.
EUR vs. USD
While overnight bourses failed to find a defined direction, currency markets traded with a similar fashion as price action was mixed (to say the least). After the risk rally began to lose steam throughout the Asian session, EURUSD started to head lower in unison with the stumbling stock market. Just as the Greenback was looking poised to put together a modest offensive, dollar bears re-emerged from the woodwork as the HSBC earnings report helped to restore confidence in both the banking sector and risk alike. The release of the aforementioned ZEW survey brought about an additional bout of modest USD strength, only adding to the fickle markets seen all the way through the start of today’s New York trading. Although EURUSD is currently trading off its recent highs, which saw the 1.50 figure come back into play, USD bears have had some recent reassurances that could led to further weakness in the American dollar. Current central bank activity, coupled with domestic fundamental data (US payrolls, for example), have failed to alter the short-term fate of the Greenback—a fortune that should see additional adversity. As today’s economic data calendar is light, save for the release of the US ABC Consumer Confidence report, look for price action to be dictated by the bearing in the equity market’s proverbial compass.
Fitch Warns UK on Rating
Whereas trading this morning has seen mostly mixed price action with limited volatility, GBP has been an exception in an otherwise tepid market. Weighing negatively on the cable was a statement from Fitch warning that the UK could be at risk of losing its AAA credit rating if another significant stimulus package iss brought into play. While the statement made very clear that Fitch has no plans to modify the United Kingdom’s sovereign rating, it did, however, indicate that it was most likely to be downgraded out of the big four debt issuers (US, UK, Germany, and France). To combat the pessimistic news bulletin, both the UK’s Trade Minister Davies and Prime Minister Brown have been on the wires to reassure the public that the UK’s AAA rating is safe, and to reiterate that measures have been put in place to reduce the government’s deficit. On the back of the news, GBPUSD crashed about 150 pips, but was able to find support around the 1.66 handle. Since that lashing, cable has been able to trade modestly higher as investors saw the earlier dip as a great entry point to pull the trigger and buy more GBP.
Have a great day.
Please note that, as tomorrow is a holiday in both Canada and the U.S., our next newsletter will be delivered on Thursday, November 12th.
By Jamie Heighway, Market Analyst
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