Markets turn bearish again on contagion concerns

Friday, July 11, 2014

Wall Street struggled to hold on to tentative support levels yesterday, erasing midweek gains as energy and financial stocks sold off. Investors resumed a bearish short term outlook as concerns regarding Portugal’s Espírito Santo group prompted a retreat from risk assets. Portugal’s central bank was quick to emphasis there was no danger of contagion, but these reassurances have so far failed to instil confidence in market participants with yesterday’s weaker European session paving the way for a bearish US trading day. 

Further insight into the Fed’s thinking was given by St Louis Fed President James Bullard yesterday in a phone interview with Bloomberg. With the labour market making striking progress over the past few months both the S&P 500 and DJIA have pushed into fresh territory over the past month while speculation among market participants on when the Fed will raise interest rates has seen bouts of profit taking in both benchmarks. Yesterday’s release of initial jobless claims, which dropped to 304K during the week ending July 5th from 315K the previous week, confirmed the positive employment outlook. Subsequent comments from Bullard yesterday outlined the possibility of lower jobless rates driving inflation higher, swelling the ranks of policymakers who are for a rates rise as early as the beginning of 2015. With unemployment in June dropping to 6.1%, the lowest level in six years, pressure is on the FOMC to raise interest rates sooner than previously estimated.

Asian stocks carried over the bearish sentiment from US markets with Japanese benchmark indices posting a weekly decline while Chinese equities snapped two consecutive weeks of gains. Spot gold prices rallied higher for a second session yesterday, with intraday moves testing levels towards $1,345/oz before closing just above $1,335/oz. Prices for the yellow metal are on track to post a sixth consecutive week of gains as overbearing concerns regarding risk events in Ukraine and the Middle East as well as renewed worries surrounding the vulnerability of the European economy boosted demand for the perceived safe haven asset. Prices have rallied almost 8% since bouncing off the early June low of $1,240/oz.

Initial jobless claims decline further as employment conditions improve

INJCJC Index US Initial Jobless 2014 07 11 07 58 50 

Spot gold prices rally higher on risk events

XAU Curncy Gold Spot Oz 2014 07 11 07 59 54

Events for today

0600

DE

Jun

CPI  & HICP Final

1900

US

Jun

Fed Budget

OE: 

Jul  Coffee (NYBOT)  

OE: 

Aug   Brent Crude (ICE) 

All times UK Local Time

 

 

More from: Kash Kamal