After Thursday powerful rally in the US equity markets, stocks consolidated around yesterdays close. A worse than expected US Retail Sales reported was countered by better than expected consumer confidence which gave market participants mixed signals. For the week, the S&P 500 was up 2.5% and was able to hold its 50-week moving average.
There have been a number of positive developments in recent days that have broken the sharp downside momentum of the euro. The unlimited liquidity that the ECB promised to provide over the next three months is helping to ease some of the tensions in the money markets. Moody’s has opined that European banks can cope with the losses related to their holdings of peripheral euro zone bonds. The ECB revised up this year’s GDP forecast from 0.8% to 1.0%. The Bundesbank revised its GDP forecast for Germany to 1.9% this year from 1.6%. The consolidation of Spanish cajas continues ahead of the month-end deadline to draw on the government’s fund. The euro’s technical tone has improved. Today is the fourth consecutive session that the euro has recorded a higher low and a higher high. Trichet said that while the ECB is looking at various options, it would not issue debt certificates to absorb the excess liquidity generated by the sovereign bond purchases. Euro was helped by German Constitutional Court rejecting efforts to block Germany from participating in the guarantees that are a critical part of the Stabilization Mechanism. While many expected such a ruling, there was a risk that may have weighed on the euro sentiment. This decision coupled with the unlimited 3-month funding by the ECB for the next several months is encouraging EUR short covering.
Analysis provided by Exto Capital