Market Overview - 12/12/2011

Market Review - 12/12/2011             22:24 All times in GMT  

Euro falls to two-month low after EU summit

The euro fell below 1.3200 for the first time in two months on Monday as the last week's 2-day EU summit failed to provide decisive initiatives, according to Moody's. In addition to pessimism expressed by all three major ratings agencies, Moody’s, Fitch and S&P’s, rising Italian bond yields also pressured euro.   
 
The single currency opened flat for the day at 1.3385 in New Zealand morning and edged lower in Asian session. Euro fell further after Moody's gave their negative reaction to the results of the EU summit in European morning. The pair penetrated December's low at 1.3213 in early New York session and later dropped to a two-month low at 1.3163 before stabilising.   
 
In euro crosses, the single currency also fell sharply against sterling and yen, tumbling from 0.8555 to 0.8453 and from 103.96 to 102.64, respectively.  
 
Moody's said 'euro area sovereigns remain under pressure in absence of decisive initiatives; EU remains prone to further shocks and the cohesion of the euro area under continued threat; EU summit not enough to help region's ratings; euro zone crisis as still in 'critical' and 'volatile' stage. ' Later, Fitch said 'summit does little to ease pressure on eurozone sovereign debt; EU summit did not offer "comprehensive solution" to debt crisis; predict significant economic downturn in eurozone in the short term.'  
 
Italian 10-year gov't bond yield rose 45 bps on the day to 6.83% whilst Italian 5-year bonds rose 36 bps to 7.11%.  
 
The British pound also dropped after a quiet open in New Zealand morning in tandem with euro in Asia and then fell sharply lower to 1.5537 in European morning before rebounding, price later jumped to 1.5665 due to active cross buying in sterling (especially versus the euro) on talk a large pharmaceutical company sold EUR/GBP actively, this was related to dividend payments. The British pound later met renewed selling pressure in New York and settled at 1.5680.  
 
Versus the Japanese yen, US dollar hovered around 77.65 in Asian morning before climbing higher to 77.92 in European morning, price touched a session high at 78.00 in New York morning on greenback's broad-based strength before easing, last traded around 77.90 in late New York session.  
 
The Dow Jones industrial average closed the day down by 162 points or 1.34%. European indices ended the day lower with the FTSE-100, CAC-40, and DAX dropped by 1.83%, 2.61%, and 3.36% respectively.  
 
In other news, British PM David Cameron said 'went to Brussels seeking a deal for all 27 EU nations; we were not trying to create an unfair advantage for Britain; makes no apologies for asking fore safeguards in Brussels, right answer was no treaty; Britain remains a full member of EU, membership of EU is vital to national interest; want new eurozone treaty to work, will look constructively at any proposals; ready to look at strengthening IMF funds, but IMF is for countries not currencies.'  
 
On the data front, Japanese seasonally adjusted consumer confidence falls to 38.1 from Oct's reading of 38.6. The US government budget deficit fell in November to $137.3 billion from a year-earlier level of $150.39 billion, less than the median forecast of 139.9 billion gap, in fiscal 2011 which ended Sept. 30, the budget deficit totaled $1.296 trillion.  
 
Data to be released on Tuesday includes:  
 
Japan tertiary index, Australia business confidence and business condition, Germany ZEW economic sentiment and current condition, EU ZEW economic sentiment, UK RICS house prices, CPI, RPI, and U.S. retail sales and Fed rate decision.