Market Overview - 01/12/2011

Market Review - 01/12/2011        21:58    All times in GMT  

Euro retreat on renewed concerns over eurozone debt crisis

The single currency pared previous day's gains on Thursday in New York session on renewed concerns over the eurozone debt crisis and as U.S. equities erased initial gains and turned negative, dampening risk appetite. Earlier in the day, euro made an attempt to re-test Wednesday's high at 1.3533 after Spain sold its maximum target of debt and French yields dropped at an auction.  
 
Although the single currency edged higher to 1.3473 in Asian morning, euro retreated to intra-day low at 1.3418 in European morning after European Central Bank President Mario Draghi said downside risks to the economic outlook have increased. However, the single currency climbed to a session high at 1.3521 in New York morning after Spain's bond auction met its maximum target and as French yields dropped in its auction, increasing risk appetite.   
 
Later, euro fell to 1.3466 after U.S. jobless claims were reported higher than forecasts but bounced back to 1.3513 after the release of stronger-than-expected U.S. ISM manufacturing data. However, euro pared intra-day gains to around 1.3450 ahead of New York close on concerns of the eurozone debt crisis and as U.S. equities pared initial gains and turned negative.  
 
In other news, ECB President Mario Draghi spoke in EU parliament and said 'downside risks to economic outlook have increased; ECB temporary measures only limited; ECB bond interventions can only be limited.'  
 
Spain sold 3.75 billion euros of bonds. Spanish 5-year bonds were issued at 5.44%, up from 4.84% previously. France sold 1.57 billion of 10-year bonds at a yield of 3.18%, down from 3.22% previously.  
 
U.S. jobless claims rose to 402K vs a forecast of 390K while ISM manufacturing climbed to 52.7 compared to a market expectation of 51.8.  
 
Versus the Swiss franc, although the greenback fell to an intra-day low at 0.9073 in New York morning, dollar rallied sharply to a session high at 0.9191 on market speculation that the Swiss National Bank might resort to negative interest rates to curb the franc's appreciation (EUR/CHF rose from 1.2256 to a session high at 1.2394).  
 
The British pound fell in tandem with euro to an intra-day low at 1.5637 after Draghi's comments, however, buying interest there lifted price to 1.5745 in European morning and cable then climbed to a session high at 1.5757 after the release of stronger-than-expected U.S. ISM manufacturing data before retreating to 1.5695 ahead of New York close.  
 
In other news, Bank of England's financial policy committee said 'eurozone sovereign and banking risks still biggest threat to UK financial stability; current environment "exceptionally threatening" for UK banks; market reaction suggests concerns about effectiveness of EU measures to stem eurozone crisis.' German Chancellor Angela Merkel said 'eurobonds wrong solution and harmful at this stage; ECB is independent and must itself chose method for currency stability; to protect ECB independence we must address the causes not just the symptoms of debt crisis.'  
 
On the data front, China manufacturing PMI and HSBC PMI were 49.0 and 47.7, lower than a forecasts of 49.8 and 48.0 respectively. German manufacturing PMI (Nov) was 47.9 as expected, unchanged from last month. Eurozone manufacturing PMI (Nov) was 46.4 as expected.  
 
Data to be released on Friday:  
 
Japan business capex, Swiss retail sales, UK construction PMI, EU PPI, Canada unemployment, U.S. non-farm payrolls, private payrolls, unemployment, average hourly earnings on Friday.