Currency and Equity Markets Volatile
The euro pulled back on Monday but quickly gained a footing before rising again on Tuesday. After a dynamic increase to $1.37 on Friday, the Monday market turned cautious as Europe’s Southern tier nations continue to weigh on the region and the currency. Primary culprits remain Spain and Italy. The political turmoil in Italy may cause a disastrous reincarnation of one the region’s fiscal culprits.
Yet, uneasiness quelled as Germany posted a strong Purchasing Managers Index (PMI). German Bunds climbed four basis points or 1.67 percent. As strong as Germany’s PMI is, France finds itself reeling after more disappointing data reported Tuesday.
After a robust start of the year, Spanish bonds fell six basis points to 5.38 percent on Tuesday. Italy fell four basis points to 4.43. Both nations are facing political turmoil. Unemployment for Spain’s youthful workers remains at 50 percent, generally an unsustainable figure and the cause of political unrest.
In Spain, there is pressure on Prime Minister Mariano Rajoy to resign. The call for resignation comes with the unveiling of supposed payments received by the PM from a slush fund. The Prime Minister denies the charges but his popularity is at a low point as he has stubbornly refused to apply for bailout funding. The Prime Minister is viewed with disfavor in many of the country’s wealthier areas.
The political scene in Italy is complicated and getting more so every day. Former Prime Minister Silvio Berlusconi appears to be a top candidate for the position to be filled by Mario Monti. Berlusconi’s platform is gaining strength because it is contrary to the platform of the departing regime. Berlusconi’s return will surely cause uneasiness with investors.
All investors will pay close attention to Mario Draghi at the ECB meeting held in Thursday. Draghi is expected to keep interest rates at the low 0.75 percent.
The major equity indices pared gains on Monday but began to pick up the slack on Tuesday. Monday’s doubts were created by a disappointing report about factory orders.
Additionally, while Germany is expanding, the rest of the euro zone and most European Union economies are associated with risk. The latest political events will not inspire confidence in the region. Further political instability in Europe and the US send tremors through international markets.
US investors may be using China’s economic data as more significant than Europe. And, in China a recovery appears to be gaining momentum.
HSNC China announced that the PMI increased to a four-month high of 54 in January. Projections are that China’s GDP will grow 8.1 percent in 2013.
Brent crude rose above $1.00 per barrel to $116.75. US crude shed $1.60 to $96.17.
Gold remained stable, mired in the $1,660 – $1680 range and settling at $1,673. Platinum increased 0.2 percent to $1695.99 per ounce. Copper dipped 0.2 percent to $8,290 per ton.