Market Comment - March 12th, 2012

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by Bettingpro Staff

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We commence the week just in the red as investors continue to tread cautiously following the finalisation of the Greek debt swap over the week end and the impending expected official go ahead for the second bailout today.

Ever since the sharp declines of early last week investors have been calling into question the sustainability of the rally so far this year and since we’re yet to have taken out the highs of the year following the recovery from last week’s lows, the stuffing seems to have been temporarily knocked out of the bulls.

The main reason for the soft start today is once again China. This time a week ago their downgrade to GDP forecasts was the catalyst for the sell off, along with other worse than expected growth figures from other emerging economies such as Brazil. Today Chinese export growth has disappointed and so the risk on rally is being kept in check. China’s part to play in the global recovery is crucial and with data like this it fuels concerns about the possibility of a harder landing for their economy than was previously expected. If Europe and the West are not buying Chinese goods at anywhere near the rate that they have been in the past few years, then China’s economy could be in for more headwinds which is one of the biggest threats to global growth right now.

This morning the FTSE is trading at 5860, down some 25 points and it’s not just the London index that is lower. Other European indices are trading in the red and there’s a real risk off feel about this morning’s price action. The dollar is higher and the likes of commodities and mining stocks are lower. If we don’t see the FTSE back above 5900 and testing the year’s highs then the recovery since the losses early last week might have been little more than a dead cat’s bounce. Only last Friday was the US employment data widely welcomed by traders who pushed indices higher, especially since the bumper numbers from the week before were also revised upwards, however that all seems quite a distant memory now.

FX traders were all on alert to see what the take up would be for private bondholders of Greek debt agreeing to take a haircut. It was said that anything over 75 percent would be seen as positive for the nation and would also mean that the other 25 percent had no choice and would have to go with the move. The participation rate was over 85 percent, but strangely traders took this as bearish and sold the single currency. Coincidentally, the strong NFP data showing that US jobs increased by 227,000, much better than expected, actually ended up in a flight to the dollar, sending the riskier currencies such as the euro lower. The euro fell hard against the dollar to 1.3120 at the end of the day and hasn't really made much ground since then. This morning the pair are trading at 1.3100, but with the news that ECB President Draghi is willing to provide unlimited cash to the region's financial system, it seems traders are generally feeling more positive about the single currency.

With the Greek government luring in private investors to accept a debt swap agreement, gold continued its rally on Friday. Although traders are still trying to figure out the full picture surrounding the deal, it was enough to ease the pressure attached to the price of the yellow brick. All in all, the precious metal gained 4.5 bucks to close at 1713.6 finding resistance around the 40 day moving average, and at time of writing these gains have been eliminated with the price sitting at 1703.0.

Crude prices were driven higher during Friday's trade on the back of better than expected NFP roll data. With the US economy being the biggest in the world and with the highest oil consumption, a good figure is seen as an indication that demand for the black stuff will stay high. At time of writing, Brent trades at 125.50.

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Market Comment - March 12th, 2012

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