Jamie Chisholm, ft.com, 13/9/2011, 13 settembre 2011
EUROZONE FEARS SPARK FRESH VOLATILITY
By Jamie Chisholm, Global Markets Commentator
14.30 di martedì 13 settembre-
Tuesday 14.30 BST. Volatility has been the only sure-fire trade as markets surge back and forth in response to the latest developments in the eurozone fiscal saga.
Hopes that China might be considering buying Italian debt provided an initially positive tone for Europe and Asia. This rally swiftly faded and equities slumped afresh as investors absorbed a difficult auction of Italian bonds and worries about French banks intensified.
Stocks and the euro then rebounded on reports France and Germany would make a joint statement on Greece – only to fall back after France denied it was planning any such announcement.
The vacillations will be wearingly familiar to frazzled traders dragged around by the markets’ sensitivity to eurozone headline risk – a theme, which along with concerns over the global economic outlook, has caused stocks in particular to display unparalleled sentiment lurches since the start of August.
Currently, the upshot of all this schizophrenia is a FTSE All-World equity index up 0.4 per cent, a FTSE Eurofirst 300 higher by 0.8 per cent and Wall Street’s S&P 500 opening with a gain of 0.1 per cent.
The euro, which has hit a session low of $1.3560 and a high of $1.3710, is now down 0.1 per cent at $1.3661.
The early positivity came as a result of the news that Beijing was in talks to buy Italian debt. Traders like the idea that one of the world’s biggest sovereign wealth funds stands ready to invest in fiscally-struggling European nations. It is seen as providing an antidote for contagion and taking the weight off Germany’s position as putative backstop.
In fact, investors like it so much that it has been a regular feature of the debt crisis, able to pop up intermittently to ease the market’s stresses.
But familiarity can breed contempt, and few were brave enough to suggest that the period of grace engendered by the China-Italy news, or even the mooted Merkel/Sarkozy statement, signalled the end of eurozone debt woes. Worries about a possible Greek default remain, meanwhile French banks’ shares are higher but have not fully shaken off wariness over their sovereign debt exposure.
A poor Italian bond auction – in which five year yields hit a record 5.6 per cent – showed investors remained extremely wary of the sector. Italian 10-year yields, which have recently taken up the mantle of prime eurozone stress gauge, and which at one point hit 5.75 per cent, are trading at 5.66 per cent, are up 9 basis points on the day.
Nevertheless, a modicum of profit taking can be seen in the more highly-rated sovereign paper. Benchmark Bund yields hit a record low of 1.68 per cent and are now 1.77 per cent, up 3bp. while US 10-year yields are up 1bp to 1.95 per cent.
Activity in commodities illustrates the rather confused session. Copper, the industrial benchmark, is up 0.6 per cent to $3.98 a pound, while Brent crude is down 0.1 per cent at $112.10 a barrel. Gold is up 0.5 per cent to $1,822 an ounce.
Trading Post.
The dollar hit a six-month high on a trade-weighted basis at the start of the week, breaking its summer trading range of about 73 to 76. It is currently down 0.1 per cent at 77.11.
Dollar trade-weighted index
Let’s be clear, however – the recent sharp rise does not mean the world has suddenly fallen in love with the greenback.
ICE’s dollar index (DXY) has a weighting of 58 per cent for the euro, so the single currency’s lurch lower on heightened fiscal fears is mostly behind the buck’s pop.
The Swiss franc carries a weight of less than 4 per cent, so the Swiss National Bank’s intervention has had marginal impact on the DXY.
Still, some are prepared to suggest a possible sustained turn in the dollar’s fortunes. Lloyds Corporate Markets says the two-year bond spread is moving in the buck’s favour.
Meanwhile, David Woo at BoA Merrill Lynch says in a note that two conditions need to be met for the dollar to rise: no extension of the temporary US fiscal stimulus measures when they expire at the end of the year; and a sharp slowdown of emerging market economies that leads to a meaningful decline in the oil price.
“The first condition is our central scenario and the probability of the second condition appears to be growing,” Mr Woo says.