Morning Financial Markets June 26, 2012

The Asian equities are trading down by 0.3 to 1 percent after weak performance of western peers and increased uncertainty over Spanish banking recapitalization.

Further from the Asian bourses, Japan’s Copper output declined while the Chinese industrial production has also remained a concern. Structural changes and increased easing in China may change the demand supply scenario of most of the base metals and may continue to support downside in today’s session. As expected in our weekly report that Chinese demand post holiday would remain subdued and has resulted in price fall of metals pack. Further, more than one-third of China’s provincial-level Governments have released wage growth targets for workers this year, with most of them trimming down salary increases as companies face decreasing profits amid a slowing economy. The downshift shows that local regions are cautious in regulating wage growth, as the economic outlook for the year remains uncertain.

Fast wage increase may further increase cost of production amidst falling metal prices and may continue to weaken base metals as China plays a pivotal consumer. The European equities may gain slightly after deteriorating the most yesterday, however rising borrowing cost and weak banking sector may continue to drag down the single currency and may weaken base metals. There are no major economic releases from the Euro-zone and hence markets may closely follow the bond yields and any further increase may support downside for base metals. From the US, better homes and manufacturing failed to add gains to equities as the banking sector remained a concern.

Today, amidst weak economic developments US consumer confidence may continue to dwindle while the Richmond fed manufacturing may release at a blend and may continue to weaken base metals. Therefore, amidst falling equities and declining confidence coupled with lower expectation of growth, base metals may remain weak and hence remaining short might be recommend for the session.

Weighing on the Asian markets is the struggle in Japan’s lower house over tax increases supported and needed by the government. Where a no confidence vote today, may affect the status of the government and also the expected moves from the BoJ.

Gold prices have given a little back in early electronic trading after Spain’s formal appeal for help for its collapsing banking system. However, the Spain has camouflaged the 125billion loan package as a bailout for the banks and not government debt the exact amount and uses remained blurred. Overall gold is looking for direction and floundering between small gains and losses. Although the markets are expected to be reactionary to news flow this week, eco data may be overlooked entirely.

The euro therefore is likely to remain weak for the day. Asian shares, taking cues from the western globe, are trading at a weak note at present moment. Gold although recoup some losses yesterday, the rally was mainly due to the Spanish rating down gradation and therefore is not likely to stay affirm today. Market is now closely looking for the European summit on June 28-29, but the situation is deteriorating continuously. The stocks are beating and bond yield spreads are widening after Merkel opposed to buy periphery bonds. So, a meaningful outcome can hardly be seen in the summit. Even, there is the rise of fifth European nation seeking for financial lifeline is, Cyprus. The pessimism of spillover effect is therefore expected to keep the Euro and gold under strain for the day. From the economic data release, the US consumer confidence may weaken after the recent releases slacken, indicating dismal US economic scenario.

However, the Richmond Fed manufacturing may show a slight improvement from the prior followed from the Dallas Fed. All these indicate a blend impact on the dollar.

Leave a Reply

Your email address will not be published. Required fields are marked *