After a period of positive flows, the Euro retraced recent gains overnight coinciding with moderately weaker global equity markets. There’s remains a degree of skepticism from both sides of the Atlantic with peripheral Europe and forthcoming US corporate earnings key points of contention. This has prompted investors to take a neutral stance ahead of key profit reports with aluminum giant Alcoa set to take the stage this evening. The Euro begun to show signs of strain with a moderate risk-off environment from Europe and the US encouraging a move below $US1.30 to lows of $US1.2936. The greenback remained the target of selected safe-haven buying with moderate gains again the Euro and Sterling. The Yen however remained the safe-haven of choice which resumed a descent below Y78.5 to lows of Y78.07.
Investors are also kept a close eye on a meeting of European Finance Ministers in Luxembourg overnight, coinciding with the official launch of the ESM. Speculation surrounding the likelihood of a Spanish bailout also remains a critical gauge of sentiment. At last week’s ECB press conference, President Mario Draghi made it clear the ball is firmly in Spain’s court, stating, “We are ready to activate bond purchases and we have a fully effective backstop. Now it’s in the hands of governments.” Markets are now left to sift through a trickle of feedback from Spain in an effort predict their next move. Investors are hoping Spain’s budget reforms and bank stress test report released last week will pave the way for a formal request for financial aid, both of these a considered critical housekeeping before financial assistance will be requested.
A downgrade in global growth expectations from the World Bank didn’t help the cause, with the bank cutting forecasts in East Asian and the Pacific. The report also noted weaker exports and lower investment growth will slice 1.6 percent from China’s bottom line in 2012, with GDP expected to fall from 9.3 percent in 2011 to 7.7 percent in 2012. Growth in the region will probably bounce back to 8.1 percent in 2013 according to the report, with policy easing and central bank stimulus expected to reverse the trend.
The Australian dollar began to show signs of steadying with a break to the upside of 102 US cents. Although the local unit failed to hold gains throughout the session, we’re seeing bid’s begin to surface once again, suggesting last week’s sell-off may have been overstated, with value traders beginning to take aim. The day ahead will see the release of the NAB Business Conditions & Confidence survey with RBA Deputy Governor Philip Lowe scheduled to speak in Tasmania. At the time of writing the Australian dollar is buying 101.9 US cents.