Heading into the close, European markets have pared session losses, supported by firmer prices on Wall Street though European bourses still look set to post the fourth straight day of losses. US economic data reaffirmed the picture of an economy gaining momentum with retail sales beating expectations, climbing by 0.6% in May versus around 0.4% expected by the market. Weekly jobless claims fell again this week and business inventories were pretty much in line with estimates at +0.3% for the month with March revised up by 0.1%. These data points build a stronger case for Federal Reserve tapering asset purchases in forthcoming months. Judging by the reaction to US data since Fed head Bernanke’s testimony on May 22, markets respond in an adverse manner to data indicating a US recovery and favourable to data suggesting the otherwise. This afternoon however, stock markets have responded better to good US economic data but that’s not a sign that nerves over tapering are easing. No, instead it’s a telling sign about stock market traders who are opportunistic creatures, using this week’s selloff as an excuse to snap up some battered stocks. This afternoon’s price action is likely to set the tone for Friday’s European session given that we don’t see a further slide in the US and Asian session later today and early Friday. That said, market volatility remains uncomfortably high on fears of reduced liquidity from global central banks together with slowing global growth. Risk aversion dominates the mood despite the improvement in stocks. Other than equities, risk sentiment for other assets continues to deteriorate; German government bonds are still in favour while commodity prices remain weak. EUR/USD and cable are have also incurred losses but Japan’s yen remains firm. Overnight, the Japanese market re-entered bear-market territory and is now 20% from its May peak. Through the course of the session, European markets latched onto positive news out of Italy as the country’s debt auction went smoothly and the economy minister said Italy will “absolutely” honour its 2013 deficit target of GDP at 2.9% and the economy will stabilize at the end of 2013 and return to growth in 2014. Italian equities rose on the back of this, with banks being the biggest winners [UniCredit, Intesa Sanpaolo et al]. Tomorrow, we have little from the euro zone other than harmonized inflation. US economic data will again be the highlight in Friday’s session with industrial output and the Michigan confidence reports in sharp focus. ________________________________________ Ishaq Siddiqi Market Strategist
Posted on: Thu, 13 Jun 2013 15:16:38 +0000
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