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Downgrades here, downgrades there

16 December 2011  •  Source: Simon Denham, Capital Spreads

Downgrades here, downgrades there yet despite S&P and Fitch chopping the ratings of various banks not just in Spain and Europe (including the UK), but in the US too. The moves caused a conundrum amongst investors who had welcomed yet another well subscribed Spanish bond auction and economic data that indicated glimmers of hope not only for the eurozone, but again across the pond where initial jobless claims fell to their lowest level since May 2008.

This jobs data from the US is very encouraging for their unemployment and overall economy which has just been through the biggest Thanksgiving and Christmas sales ever and seen its rate of unemployment decline just this month. It’s little wonder that Bernanke didn’t mention anything about any further stimulus or extension of keeping the Fed Funds rate at low levels beyond the middle of 2013 when their economy seems to be turning a corner. Not much can be said for our side of the Atlantic, however yesterday did see some encouraging signs from the services and manufacturing core of Europe, with PMI data taking a little jump higher, although much of it still in contraction territory.

So investors continue to battle against the back drop of this European debt storm and indecision continues to remain rife. When you get assets like the US dollar spiking you have to start to worry. The normally perceived safe haven of gold has seen a mass exodus and volatility remains high. The dollar index is back above the 80.00 level, not seen since the beginning of October when stock markets had that crash in August and September. Maybe this is a sign that the fear has gone too far but few seem willing to take the risk of jumping into the equity market which is of particular concern when we are supposed to be in the most bullish month of the year.

The FTSE is just about grinding out again this morning holding onto the 5400 level. A downward channel has formed in the past couple of weeks the upper trend line of which comes in around 5450 and the lower below 5300. With such little economic data out today and next week being effectively the last one of the year with Christmas in the way after that, many people are probably tempted to net off their books and call it a year. Volumes are likely to be low from here on in, but this is where markets can sometimes be pushed to the upside. With triple witching today anything can happen.

The euro seems to have found a level at 1.3000 against the dollar where the bears have run out of momentum to push the single currency lower. Flat to lower this morning EUR/USD is at 1.3010 and with the trend lower still very much negative there are few bulls out there to support the euro and if there are any, a move higher would probably be seen more of a bear squeeze than a reversal of the trend.

Holding a narrower range, gold managed to end the session with only a 3.6 dollar loss, finishing at 1570.2 after touching a new recent low of 1560.1 earlier in the session. It seems that EU officials are struggling to bring positive news to the markets over the sovereign debt crisis and with technical indicators showing that the bears are winning the battle; it’s not looking like a pretty picture for yellow brick. At time of writing though, there are still some bargain hunters left as the precious metal is trading up at 1590.1.

Crude prices started off by climbing higher helped by signs that the US economy is still on the mend. These signs came in the form of those impressive initial jobless claims and rather optimistic manufacturing sentiment. However, the price was not able to stay at a raised level for long as markets were flooded with further concerns over the European debt crisis and the black stuff crashed lower to the 103 area. This morning though a few tentative buyers are pushing Brent higher with it trading up at 103.96.