Daily Market Report 12/10/12

In a perverse reaction, the euro saw gains throughout the day against many of its major peers in the wake of Standard & Poor’s ratings downgrade.

Despite having the quality of its debt reduced to just one level above junk bond status, investors poured into the shared currency in consistent fashion throughout the day’s trading. The rating agency’s actions were viewed as a positive because it may promote greater urgency from Rajoy in the Spanish bailout saga.

Many expected the downgrade to BBB- to have come before this point, however the move may only have a real effect should Spain’s bond yields creep back up.

In recent months investor risk appetite has been akin to a light switch, either on, or off. Yesterday a ‘risk-on’ approach was evident as investors left the dollar and yen safe havens in search of greater returns in riskier assets. Amplified by encouraging US jobless claims data, which showed a decrease to the lowest levels in 4 ½ years, the weakening dollar represents an improved American domestic outlook, even in the face of the slowing global growth.

We know that the markets yearn for a Spanish bailout, that much is clear, therefore any steps closer towards the much-craved announcement tend to result in euro strength. Today, euro strength may continue, however its performance will likely be range bound as investors rationalise their bubbling optimism that a bailout is nigh.

 

Key Announcements Today:
  • 10.00am – EUR – Industrial Production: expected contraction to -0.4%
  • 13.30pm – USD – PPI m/m: expected growth of just 0.8%, previously at 1.7%
  • 14.55pm – USD – Prelim Consumer Sentiment: expected similar to previous 78.3, at 78.1

See previous Daily Market Reports