Wednesday 4 July 2012

Market Update- 5 July 2012

Market Update - 5 July 2012

     With the US closed trading was thin overnight but there was a risk off tone to proceedings as concerns over the delay on the Spanish bank recapitalization and the US payrolls loom Friday.

·     USDMYR opened back up higher ar 3.1570-3.1630 as the 3.1400 level for support still holds for now and we expect thin trading today with BNM meeting ahead tonight.

·     The BNM MPC meeting later in the evening should show no new directions and remain neutral as we believe BNM will hold on to the current levels, we await the post MPC meeting statement for fresh directions

·     Equity markets across Europe were down, the FTSE fell 0.06%, the CAC -0.1% and the DAX fell0.2%.

·     Spanish and Italian equities fell0.7% and 0.78% respectively, with 10 yr bond yields up 16.5 and 13.8bps in those countries. Bund yields fell 8bps and gilts lost4bps in yield.

·     Sterling fell a big figure ahead ofthe BOE meeting tonight, last trade 1.5595 as market expects the BOE to have a potential rate cut to boost the current weak outlook

·     Commentators suggesting tonight’s decisions by the ECB and BOE will have a big impact on markets might be disappointed. A 25bp cut to the main lending rates form the ECB and an additional 50bn pounds of assets purchases are already priced in I reckon, the big hold out being whether the ECB will announce any extraordinary measures on the back of last week’s political agreement.

·     The bigger concern for me is the state of the wobbling US economy and we will have ADP jobs and ISM non manufacturing PMI there tonight, two big numbers preceding the payrolls number on Friday.

·     ECB council member Kla as Knot was reported as saying the bond purchase program will remain “fast asleep”, a recurring sentiment, “If someone has to help southern Europe, then it has to be other governments, not the ECB,”

·     Services PMI’s in Europe were mostly stronger than expected but Germany was weaker and retail sales rose, but a revision to last month’s figure darkened the picture, see below.

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