Latest News and Articles

The Latest News! Fresh off the press . . .
For more hot news and discussion check out our ZANDERS Blog . . .

May 11, 2010 - As Global Optimism Fades, Markets Get Hit

Despite yesterday’s broad equity market rally that saw both the Dow and S&P 500 post their best single day efforts in over a year, the following overnight sessions seemingly marched to a different drum. While the unveiling of the near $1 trillion dollar loan package introduced by European policymakers over the weekend was the major catalyst in Monday’s relief rally, a grim reality appeared to set in as traders took to their screens in Asia and Europe. Throwing cold water on the pick-up in risk demand, China is once again plastered all over the financial headlines as monetary tightening fears circulate throughout the world’s fastest growing economy. The Asian morning witnessed the release of the all-important Chinese consumer prices data, coupled with property and retail sales figures. With the majority of economic data hitting new pinnacles today (April CPI shot to 18-month highs), all signs point to further government action in the form of quantitative tightening in attempt to cool down the overheating Chinese economy. As the prospect of government intervention continues to swell, market participants insist on pulling funds out of Far East bourses, evident in year-to-date price action seen in China’s benchmark equity index. The Shanghai Composite dropped another 2% this morning, adding to losses that have totaled about -20% on the calendar year. To put the lackluster Chinese stock market in perspective, the performance of the Shanghai Index has been one of the world’s worst. To date, only the Greek stock market has managed to achieve a poorer result.

Eurozone Aid Worries Over Long Term

While Monday’s market rally was caused almost entirely by the introduction of the ECB’s (and to a lesser extent IMF) eurozone rescue package, this morning has seen a sharp reversal in optimism as traders once again become concerned with the potential fallout of such an aggressive aid provision. With that said, risky asset classes such as equities and high yielding currencies have taken the brunt of the weight as traders prefer to park their positions under safe haven outlets such as American dollars. Because of the shift into safety, EURUSD has given back the majority of its gains achieved over the past 24 hours, and once again finds itself eying down the lows achieved less than one week ago. Insecurity has hampered any upbeat sentiment as the planned aid package has effectively guaranteed that the European Central Bank will be forced to plug in the printing press and turn out additional Euros. By introducing supplementary legal tender to help with government funding, new found fears have spread on grounds that the flood of fresh Euros entering the system will further devalue the European currency. While short term fluctuations are sure to be seen in the world’s most liquid currency pairing (EURUSD), fundamental issues throughout the peripheral European states should keep downward pressure on its currency for some time to come.

Gold, CAD Climb

Riding the coattails of the general reduction in risk this morning, domestic stock markets as well as crude oil have fallen in tandem as traders pile into safe haven channels. That said, gold has benefited immensely as the flight to safety has pushed the precious metal over $20/oz today, approaching December’s apex of $1226.10/oz. Although the Canadian dollar is typically labeled as a higher yielding growth currency read: risky, the loonie has been able to sustain some traction this week as it follows gold’s path higher. The Canadian dollar is trading over 500 pips stronger versus levels seen last Thursday when the Dow mysteriously dropped a shocking 1000 points before staging a rebound. While the prospects of a BOC rate hike on June 1st continue to look strong, the outlook moving forward should see the USDCAD pairing drift back towards parity in anticipation that monetary tightening looks almost immanent.

By Jamie Heighway, Market Analyst: nlmcanada@customhouse.com