Market Review – 27/05/2010 21:33Euro surges broadly on short-covering after China’s denialEuro rose sharply across the board on Thursday as investors’ worry was eased after China and Kuwait refuted media reports that they would reduce their holdings in eurozone sovereign bonds due to the European debt crisis.
Euro drew support as the People’s Bank of China said a Financial Times (FT) report which claimed that Beijing was concerned about its eurozone exposure was groundless. China Investment Corp President Gao Ziqing reiterated that the China’s $300 billion sovereign wealth fund would not cut its investments in Europe and it would focus on long-term investments and not be distracted by short-term market volatility. The Kuwait Investment Authority also reiterated it is a long-term investor in Europe while South Korea’s central bank said it had no plan to reduce euro assets in its foreign reserves.
Despite euro’s initial weakness to 1.2154 in Australia, the euro rebounded on Thursday after China’s denial of the previous FT report. This brought return of risk appetite and European and US stocks rose sharply on that news. Euro picked up more upward momentum after triggering stops above 1.2221 and surged to 1.2343 in European morning on active short-covering. Although the single currency then pared some of the gains and retreated strongly to 1.2204, the pair subsequently rallied from there and hit 1.2395 in NY afternoon on strength in European and US stocks as FTSE 100, CAC 40 and DAX all closed up by more than 3% while DJI rose by 2.85% and ended the day above 10,000 points at 10,258.99. Euro also drew support on long liquidation of dollar after the speculation of strong dollar demand for the London fixing failed to materialize later. In other news, St. Louis Federal Reserve President James Bullard said European debt worries helped drive down long-term U.S. yields and he did not expect contagion from Europe’s fiscal problems to the United States and instead, the US might actually benefit from a ‘flight and safety’. Euro later retreated from said high and ended the day at 1.2360.
The British pound rose in tandem with euro on Thursday and active cross buying in sterling especially versus euro (eur/gbp tumbled from 0.8510 to 0.8422) lifted cable to 1.4587 before retreating again. However, cable managed to rebound from 1.4405/10 in tandem with euro and rallied to 1.4608 in NY afternoon. In other news, listed insurer Prudential said there was no change to its bid for AIA and cable was once pressured briefly by the news. In addition, U.K. CBI retail sales balance came in at -18.0 in May, the lowest since March 2009, much weaker than economists’ forecast of 12.0 and well below 13.0 in April.
Versus the Japanese yen, the greenback traded with a firm undertone throughout the day. The pair managed to edge higher after rebounding from Wednesday’s NY low of 89.81 and despite brief retreat after release of weaker-than-expected US data, renewed buying interest lifted price again and the dollar eventually rose to 91.09 in US afternoon. On economic front, U.S. Q1 GDP rose by 3.0% (economists’ forecast was 3.4%) whilst Q1 PCE price index increased by 1.5% which is the same as economist’s forecast. U.S. initial jobless claims increased to 460K, more than economists’ expectation of 455K.
Investors returned to buy assets linked to growth as China’s denial boosted risk appetite. Gold price rose to 1218.10 from 1206.10 while oil price also jumped by about 4% and posted its biggest two-day gain since mid-August. U.S. crude futures for July delivery settled to $3.04 higher at $74.55 per barrel. Aud/usd also rose to 0.8531 from 0.8202 while nzd/usd jumped to 0.6859 from 0.6629 and usd/cad dropped from 1.0706 to 1.0481.
Economic data to be released on Friday include: Japan household spending, National CPI, Tokyo CPI, unemployment, retail sales, Germany CPI, HICP, import price, Swiss trade balance, kof indicator, U.S. PCE, personal income, Chicago PMI, University of Michigan’s survey and Canada Current account.