The euro dropped to a two and half year low today after comments from ECB official Ewald Nowotny suggested that bond buying could be integral to addressing the ongoing weakening of the eurozone economy. The single currency reached a fresh year-to-date low of 1.2247 against the dollar, a level last reached in September 2012 as ongoing dollar strength saw investors favour the greenback owing to better economic data recently. The euro has lost 1.8% so far this month, bringing year to date losses against the dollar to just over 11.6% as polarising prospects for the eurozone and the US economy drive investment flows to the latter. With these latest comments from Nowotny investors are hopeful for further stimulatory measure from the ECB.
European equity markets erased some of last week’s late gains today as disappointing Asian data released earlier this morning prompted investors to embark on a round of profit taking. Japanese data released over the weekend set the tone for a bearish start to this week after the final reading for Q3 GDP saw the economy shrink by an annualised, seasonally adjusted -1.9% which was worse than the previous figure of -1.6% and markedly worse than expectations of a more modest -0.5% decline. Japanese investors have increasingly grown cautious in the run up to the snap election on 12th December and as the recession deepens we could see further risk aversion across global equity markets this week.
Chinese economic data compounded the bearish outlook, with November trade data released early this morning signalling a significant deterioration in both export and import growth despite the overall trade balance pushing further into surplus from $45.41bn in October to $54.47bn in November. Market participants polled by Bloomberg had expected exports to increase by 8.0% last month but were disappointed with a 4.7% y/y increase while import growth unexpectedly reversed direction, falling -6.7% y/y against expectations of a 3.8% increase.
The sluggish growth outlook saw both the energy and metals and mining sub sectors hit particularly hard during today’s session with Royal Dutch Shell and BP facing firm selling pressure throughout the session in London. Spot gold prices managed to recover some of Friday’s heavy losses as risk aversion saw investment demand for the yellow metal improve. After opening around Friday’s close gold prices briefly slipped back towards $1,187/oz early on before buying pressure towards the European open saw prices rally towards $1,200/oz.