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Equity markets have had a more positive bias today, however caution remains about the overall outlook in the face of the situation in Europe, with markets slipping from their highs in the afternoon session.

Successful T-bill auctions from Spain and Greece has prompted some buying ahead of the last Fed meeting of 2011, with some expectations that the Fed could extend its low rate vow through until mid-2013. While this may not happen soon it sends a message that policy could remain accommodative for even longer than previously speculated.

The oil and gas sector has led the gains today on the back of some positive broker notes on oil prices, due to fears over supply disruptions.

This has seen BG Group, BP and Royal Dutch Shell push higher while oil services have also rebounded with Petrofac leading the gainers.

Mining stocks have also bounced back after reports that Australia upped its export forecasts for next year on coal, copper, iron ore and gold.

On the downside Whitbread is the biggest faller after reporting that sales growth slowed in the third quarter at its Costa Coffee shops and Premier Inn chain of hotels. Fashion retailer Burberry is also underperforming.

US markets opened higher this morning despite US retail sales missing sharply to the downside, coming in at 0.2%, well below market expectations of a rise of 0.6% and going against speculation of a black Friday bounce.

Earnings news was also disappointing with electrical retailer Best Buy reporting that Q3 profit fell 13% expectations was for EPS of $0.51c however they only came in at $0.42c share.

Rumours in the afternoon of Iranian military exercises in the Straits of Hormuz sent oil prices higher and with that, oil shares as Chevron led the gainers, followed by ExxonMobil. Financials have also bounced back with Bank of America leading the way.

The US dollar has slipped back today finding it difficult to break above the triple resistance against a basket of currencies which currently sits at 79.85.

The main gainer has been the Australian dollar on the back of that report out of Australia about increased export forecasts, dragging the Kiwi along in its wake.

Slightly softer bond yields in Europe saw the single currency initially find some support today after Spain, Greece and the EFSF managed to raise money by way of T-Bills. This was soon undone on a report that Angela Merkel had blocked any increase in upper limit on the new bailout fund (ESM), from the current €500bn ceiling, hitting. This sent the euro spread trading market to its January lows.

The pound has managed to stay fairly steady after inflation numbers came in as expected suggesting that inflationary pressures may be starting to ease.

Countering that the Bank’s chief economist Spencer Dale suggested inflation may stay stickier than anticipated as we head in to 2012, saying he needed to be convinced that inflation was on a downward path before committing to more QE in the New Year.

Oil prices jumped sharply in the afternoon session on reports of Iranian military exercises in the Straits of Hormuz, which was later denied by an Iranian Foreign Ministry spokesman, while vague talk of QE hints also helped underpin prices.

Copper prices have pulled back some ground on the back of the increased export forecasts out of Australia.

Gold prices have rebounded from seven week lows as the US dollar has weakened today, however the fact that it closed below the 144 day MA for the first time since January 2009, suggests that we could see further weakness in the short term towards $1,618 and the 200 day MA.

CFDs, FX and Spread Trading are leveraged products and carry a high level of risk to your capital. It is possible to lose more than your initial investment. These products may not be suitable for all investors, therefore ensure you understand the risks involved and seek independent advice if necessary.
 

By Micheal Hewson, Analyst, CMC Markets.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

This material should not be construed in any circumstances as a recommendation or offer to sell or recommendation or solicitation of any offer to buy any security or other financial instrument

The material is not a personal recommendation and you should seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks if you are at all unsure, as well as confirming the legal, tax and accounting characteristics and consequences of any transaction.

European markets have dropped sharply today in the wake of the fudge that was last week’s euro summit.

Despite the noise surrounding the perceived isolation of the UK, this remains a sideshow to the overall problem as European leaders continue to berate the doctor, while neglecting to deal with the underlying symptoms of the debt crisis.

Ratings agency Moody’s also weighed into the debate by warning that it would review its ratings on all EU nations in the first quarter of 2012, while markets wait nervously for an update from S&P after their threat last week to revisit the ratings question after the summit.

The determination of EU leaders to enforce even more austerity by way of the fiscal compact will have an even more cancerous effect on growth in Europe and exacerbate the already weak outlook for Europe into 2012.

The biggest losers are not unexpectedly the cyclical basic resource stocks of the miners as investors start to price in a prolonged recession in Europe, while Eurasian Natural Resources is down on alleged reports of corruption at one of its Kazakh subsidiaries.

Financials are also getting hit hard with Lloyds Banking Group and Royal Bank of Scotland both lower. The FSA report on the collapse of RBS didn’t really shed any new light on the failings that caused the bank to be bailed out with the main criticisms being of the fragmented regulatory regime in place at the time.

On the plus side defensives are popular again with tobacco, utilities and health care stocks pushing higher. GlaxoSmithKline is the lead gainer, while BAT and Imperial Tobacco are also higher.

In the absence of any market data ahead of tomorrow’s last FOMC meeting of the year US markets took their cues from Europe, opening lower as concerns about Europe prompt investors to adopt a safety first mentality.

Financials bore the brunt once again with Bank of America and JP Morgan lower while the biggest faller has been chipmaker Intel after posting a profits warning for Q4, cutting its revenue guidance due to hard disk supply shortages.

The US dollar is the biggest gainer today as markets go into risk off mode with the Scandinavian and commodity currencies bearing the brunt of most of the losses.

The single currency has also slid back with the euro hitting its lowest levels against the pound since early March, while against the US dollar it is testing back towards its November lows.

Italy did manage to sell €7bn of 1 year bills at 5.95% with a bid to cover ratio of 1.925, just below the previous 6.087% which on the face of it looks good, however it overlooks the fact that Italian bond yields were much higher at the previous auction, and have since slid back.

The pound has performed fairly well despite the political fallout from David Cameron’s veto, suggesting markets are sanguine about the UK being adversely affected by last week’s events.

The gold spread trading market has been clobbered today revisiting its November lows, causing some concern to gold bulls as it pushes to its lowest levels since October, while silver has also fallen back sharply.

Moody’s statement that they would be reviewing the ratings of all EU nations on Q1 of 2012 has sent oil prices sharply lower today as worry that the tightening of budget rules, will ultimately weigh down any European recovery for the foreseeable future.

Copper prices have also dropped after industrial production data in China suggested that output was slowing down sharply, as it grew at its slowest pace since August 2009, while concerns about growth in Europe are also weighing on the price.

CFDs, FX and Spread Trading are leveraged products and carry a high level of risk to your capital. It is possible to lose more than your initial investment. These products may not be suitable for all investors, therefore ensure you understand the risks involved and seek independent advice if necessary.
 

By Micheal Hewson, Analyst, CMC Markets.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

This material should not be construed in any circumstances as a recommendation or offer to sell or recommendation or solicitation of any offer to buy any security or other financial instrument

The material is not a personal recommendation and you should seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks if you are at all unsure, as well as confirming the legal, tax and accounting characteristics and consequences of any transaction.