Markets are pausing for breath after yesterday’s big sell off that could be enough to mean that this December might be one of those rare ones where Father Christmas doesn’t give investors what they’re after. 

As we approach the year end 2011 will be a year that many will want to forget.  A terrible year for stocks with the European debt crisis deepening, and global growth slowing the outlook for 2012 isn’t all that much better either.  Fund managers have had it tough this year as the pressure on them continues to mount with investors becoming more and more demanding for capital appreciation during these times of record low interest rates and high inflation.  The ability to stock pick is becoming increasingly difficult as investors think they’re onto a bargain only to see their holding down 5% the next day because of a wider sell off in the market due to the ongoing risk aversion caused by the eurozone crisis.  Yet another summit passes and investors have been left scratching their heads as to whether things are going to be any better in six months time. With all the big credit ratings agencies circling above the eurozone and ten year bond yields spiking it remains difficult to get excited about equities and as we’ve seen in the past rallies tend to be short lived.

The FTSE is just in the black at the time of writing at 5440 after US markets bounced off their lows towards the end of trading last night.  Support areas are seen at 5410/5395 and then 5350 with a bit of a downward trend line forming in the short term putting resistance around 5500 and then 5555 and 5605 to the upside.  Clients have been tentatively buying into the recent weakness hoping the support will hold out and that despite yesterday’s sell off, the Christmas rally could still materialise.

Lot’s of economic data out today with UK inflation numbers to get us underway.  CPI is expected to dip below 5% and from here on in expectations are for a continuation of softening inflation which will be most welcome by consumers.  Then we get the German ZEW survey, followed by US retail sales at lunch time and we end the day with the FOMC rate announcement.

FX traders saw the euro take nearly a 200 pip hammering against the dollar yesterday, as the grim reapers of the credit rating world said that the EU summit last week really didn’t give much indication as to how the eurozone debt crisis is to be resolved.  There could be several casualties seeing their credit ratings cut, and it comes just as we are due German Economic Sentiment figures today, which is expected to show a three year low.  Caution is the theme at the moment and traders of the dollar are taking advantage of the euro’s weakness.  The pair traded at 1.3161 yesterday, which is a level not seen since October 4th.  It appears there is a bit of a bear market squeeze at the moment and the pair has moved higher to 1.3205.

Gold traders were given a rude awakening in the early hours of yesterday morning when their gold price alerts were set off ringing.  The yellow brick dropped 20 bucks within a matter of minutes and later on in the session, the stronger greenback and weakening equity markets helped stretch out the loss as investors concerns were accentuated over a possible downgrade of the European sovereign debt from Moody’s.  All in all, the precious metal shed 43.9 dollars to close at 1666.8 and at time of writing, the losses carry on, as gold trades at 1662.0.

The risk of a downturn in the European economy hasn’t wilted away yet and crude traders are following the movements of EU leaders with the eye of a hawk.  The general feeling appears to be that European officials did very little to avert that risk and so be it market watchers saw riskier assets like equities and commodities dumped.  At time of writing, Brent has seen a small boost and is trading at 107.78.