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Risk Has Left the Building |
European Equities Fall on Increased
Concerns
Overnight markets throughout Asia and Europe registered heavy losses
during their respective sessions, all but adding to the recent
reluctance being seen in markets around the globe. The MSCI Asia Pacific
Index, which excludes Japan (closed due to Culture Day holiday), slumped
1.5% as Australia increased its benchmark lending rate for the second
time in consecutive meetings. Following the dismal Asian session,
European equities continued the foray into red figures, forcing stocks
to sag to their lowest levels in two months, as a reduction in risk has
been the overriding theme of late. Weighing on the eurozone, UBS has
reported a greater-than-estimated quarterly loss (for the forth
consecutive quarter), bringing the Swiss bank to its knees as the share
price sank the most since May. Elsewhere, the Royal Bank of Scotland
Group Plc. plummeted close to 7% off news that the U.K. government has
increased it aid package by 25.5 billion pounds, unofficially awarding
RBS with the title of world’s most pricey bailout. In the wake of
another run of bad news from the seemingly fragile European banking
sector, the broad Dow Stoxx 600 looks poised to close at its weakest
levels since September 3rd.
EUR Drops Versus USD
While demand for risky assets has been dusted under the rug for the time
being, safe-haven outlets have been in high favour as another bout of
uncertainty has made its way onto the forefront. Because of this
newfound penchant for shelter, the American dollar has benefited
tremendously at the expense of some of the most popular tradable
currencies. The most liquid of such pairings, the euro has suffered
mightily versus the dollar this morning, dragging the EURUSD to its
weakest levels since the first week of October. Trading over 150 pips
lower this morning than yesterday’s New York close, the EURUSD has
broken below the pivotal 1.47 handle. As previously mentioned in last
Tuesday’s World Market Update, 1.4700 represented an area that contained
a great deal of support, and one that has held the medium-term uptrend
in the recent dominance of the euro versus the Big Dollar. Technically
speaking, the 1.47 figure represented the recent low, the 61.8% fib
retracement of the October low-high, and a solid trend line that has
been in place since March. That being said, the rupture of 1.47 now
opens up a downside bias that makes a test of 1.4500 all but inevitable.
While the charts suggest further euro weakness against the Greenback, a
vast array of fundamental data and central bank meetings on tap this
week could certainly skew the view that the technical indictors
presently point toward.
Gold Gets Lift on IMF Sale
Although the current risk backdrop has taken a backseat in exchange for
safe-haven dollars, gold was able to separate itself and trade higher
off the news of a major sale. In a deal worth close to seven million
dollars, the IMF (International Monetary Fund) has sold 200 tonnes of
the precious metal to the Reserve Bank of India. While the gold sale in
general was largely expected, the buyer of the gold, India, does come as
a bit of a surprise. It had been largely speculated that China was the
leading frontrunner, expected to pull the trigger on the majority of the
403.3 tonnes the IMF had on the auction block. While India holds the
label of being the world’s largest consumer of gold (mostly for jewelry
purposes), the move to ramp-up their gold supply to diversify reserves
has increased India’s gold holdings to tenth amongst central banks
throughout the world. Off the back of this historic transaction, gold
has climbed just shy of seven dollars to currently trade at $1060/oz.
Have a great day.
By Jamie Heighway, Market Analyst
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