Not All Bad News For Europe

The inadequate efforts by European policymakers to stem the debt crisis that threatens to tear apart the euro zone is once again in the spot light as investors focussed on the disappointing outcome from the meeting of European Union finance ministers in Cy-prus on September 14 and 15. Participants failed to reach consensus on the all important issues of reforms to make the banking system more unified, the conditions to be attached to bailout requests and the role that the European Central Bank should play. Spanish 10 year bond yields rose to above 6% even as the nation successfully sold EUR 4.6 billion of bills at its latest debt auction. The EURO opens this morning lower at 1.3040.

It wasn't all bad news from Europe. German investor confidence rose for the first time in five months according to the ZEW Center for European Economic Research as investors reacted to the ECB bond buying programme. Meanwhile, the widening rift between Japan and China over disputed islands saw American depositary receipts of Chinese stocks slump for a second day as concerns grow that the drama will impact negatively on the Chinese economy which is already growing at the slowest rate in three years. Japanese retailers have closed their operations in China as demonstrations spread across the country. The serious diplomatic rift and the controversy surrounding the high profile case of ousted Politburo member Bo Xilai threaten to destabilise the once in a decade transition of power that is due to occur later in the year. The Australian dollar has held at 1.0450.

The world's most highly valued company, Apple continues its spectacular rise after it announced that it had sold over 2 million iPhone 5s in the first day of orders, twice as much as the record set by its previous model. FedEx shares plunged more than 2.5% after it cut its profit outlook as consumers seek cheaper delivery options amid a slowing U.S. economy. The S&P 500 has closed 0.13% lower at 1,459 led by falls in commodity, financial and consumer discretionary stocks. The index is still 16% higher after three consecutive months of rises. Earlier in Europe, investor confidence was dented by another 'no result' EU meeting of finance ministers. The DAX lost 0.76% while the FTSE closed 0.43% lower.

Commodities have suffered significant falls for the second consecutive day with the CRB index losing 2.9 points to 311.56. WTI crude fell to a two week low after Saudi Arabia announced that it would take action to lower prices by increasing supply if neces-sary. Crude fell more than 1% to $95.50. Precious metals put in a good performance to consolidate near recent highs even as broad weakness permeated the markets. Gold rose 0.2% to $1,774 while silver gained 1% to $34.75. Soft commodities were broad-ly lower again led by losses in wheat, corn and soybean. Copper is trading flat.

GOLD consolidated near its recent highs after the QE3 announcement from the Federal Reserve even as other asset classes experienced broad weakness. Gold traded a $1,754 to $1,773 range. There are increasingly bullish signs that gold may trade higher as inflation becomes a concern in the wake of QE3. We have always maintained a bullish long term view on gold. Our recent bearish view on gold was supported only by our belief that another round of quantitative easing from the Federal Reserve would not eventuate this year. The only obstacle to higher gold prices, a Fed reluctant to enact another round of stimulus, is now gone. We now revise our outlook on gold to bullish in the medium term. New record highs this calendar year are increasingly likely. In the short term there is still scope for some falls after the recent price surge. However, any falls will be short lived. Despite still weak fundamental demand from key markets like India, gold has never really been driven by demand.
Look for a $1,768 to $1,785 range today.

Compass Direction
Short-Term Medium-Term
NEUTRAL BULLISH


AUD/USD continued the slide lower during the Asia morning as the market sold the currency on the release of the RBA minutes before really reading into the fine print. The price fell from 1.0475 to meet our 1.0435 support before pulling back towards the days high at 1.0485 as the market over extended itself with new bears being squeezed. However, the bearish tone was to win out yet again with risk off trading controlling the action during the European session across most currencies despite little new information. Solid option related buying ahead of the 1.0400 support stopped the decline and with the little information flows and slightly weaker than expected data the price recovered during the US session to now close down 20 points on the day at 1.0452. The breakout of the short term channel could see the price return towards 1.05 before the next decline but with tensions rising between Japan and China, there could be a quick decline towards parity for the AUD. Only minor
data releases for the AUD today.

Compass Direction
Short-Term Medium-Term
BEARISH BEARISH
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