Markets Disappointed by the EU Summit Results

After the sharp losses seen yesterday, markets are moving in tight ranges ahead of the weekend, as trading is light since many investors closed their positions to lock on profits following the disappointment felt when the results of the EU’s summit were announced.

European leaders managed during the summit that started yesterday to agree on a new fiscal pact that ensures tougher budget disciplines, yet after nearly 10 hours of intensive talks they failed to agree on a treaty that would involve the 27 member nations, so the deal will involve for now the 17 euro zone nations.

EU leaders also said the euro zone is planning to make available up to 200 billion euros to the IMF to strengthen its resources that would be effective as soon as possible, while ECB’s president Mario Draghi hinted that any bond purchase program is not considered at the time being.

Sentiment deteriorated further after Moody’s downgraded three French banks BNP Paribas, Societe Generale, and Credit Agricole due to the fragile and deteriorating operating environment for European banks. BNP and Credit Agricole  were downgraded to Aa3 while Societe Generale was downgraded to A1.

Meanwhile in Asia, South Korea’s central bank cut the 2012 growth forecasts dramatically to 3.7% from 4.6%, while China’s inflation fell to the lowest since Sep. 2010 at 4.2% from 5.5% previous, and the industrial output grew by the slowest pace in more than two years during Nov. by 12.4%.

The Chinese data signal weaker growth and open the way for more stimulus measures as economic conditions are deteriorating since the downside risks generated by Europe’s debt crisis are widening. As European leaders failed to boost investor confidence, losses were seen across the Asian stocks markets.

Nikkei 225 fell 1.48% while Hang Seng was down 2.73% at closing. However in Europe stocks are mixed after Angela Merkel said she is very satisfied with the agreement since it is not a “lousy compromise”, while some investors expect the ECB to buy Italian bonds. DAX fell 0.1% while CAC 40 rose 0.17%.

Although there are numerous economic data today, it is more likely that it wont grasp any of the markets’ attention as the focus remains on the European leaders. In Germany, the trade balance disappointed after exports fell by -3.6%, while the CPI came inline with expectations.

In UK the producers price index fell in Nov. from the previous month, yet not as much as expected.Canada will release later today its trade balance for Oct., while the US will release its consumer confidence report for Dec. expected to improve and the trade balance for Oct. expected to show wider deficit.

The currencies are moving in tight ranges today ahead of the weekend, with some bullish momentum after the European markets opened trading. The USD is trading around the 78.75 level while the euro is moving around the 1.3360 level. The pound is trading around 1.5645. The AUD is trading around 1.0120.

The yen weakened slightly today trading around the 77.70 level. The dollar’s bearish momentum helped commodities compensate some of yesterday’s losses, where oil is trading around $98.40 per barrel while gold is trading around the $1714.40 per ounce level.

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