The US equities have been pushed up by stronger pending homes sales were awaited to be up by just 5% in April from 5.3% in March monthly but they have come up by 6%. The confidence has brought back to the investors who continued buying in the European session with no new bad news released coming out from Europe!
As May EU PMI manufacturing index came at 55.8 from 55.9 in April and Services index at 56.2 from 56 in April showing stability of the economic expansion in EU unfazed yet by the debt crisis from expected tightening steps from the governments for capping their deficits which should effect on the demand which moves the growth up, after the disappointing report of the ECB which weighed negative on the single currency to record a new low last Tuesday below 1.2143 at 1.2115 which can add weakness to it versus the greenback. As the markets worries about the European financial situation have accelerated containing the market sentiment after the release of it punishing the single currency across the broad falling from 1.23 with calm market trading last Monday because of the US markets closing as the ECB report has warned about the long term debt refinancing in Europe which look in need of 800 billion euros by the end of 2012 suggesting that the European banks are in need to be ready for facing bad loans following the debt crisis which can reach 123 billion euros for 2010 and 2011 to reach 105 for 2011 and for facing the bad loans from 2007 till 2009 they should put be ready with 238 billion euros. The financing problems are still looking ahead from the ECB report showing a serious need for storing stability and injecting funds into the nerves of the European banks too as the European governments which can transfer the problem to the balance sheet of the ECB threating the single currency.
The market has seen in the report more problems to face the ECB than just conducting the suitable monetary policy of the Euro for the European countries which are in safe from the debt crisis facing just negatively impact of it like Germany, France and Italy and the countries which are facing actually unsustainable debt position risks and in need of supporting like Greece, Portugal and Spain right now, they are also a lack of liquidity and crediting problems effecting negatively on the investing sentiment with the current low growth rates of the economy which can be exposed to recession again with the lost trust in the single currency which is subjected to fall further in the short term. The market was waiting from the ECB for further details about the ECB plans of buying bonds after the announcement about reached agreement with the IMF to provide 750 billion euros in a rescue package plan under the request of the European countries which are facing debt problems opening the door for the ECB to start discussing and buying European bonds by the volume which it sees suitable and suddenly, it has this new chock of facing a great deal numbers of bad loans and further sack of liquidity which can push the interabanking key interest up further in the Euro zone.
The gold has eased last month from its all times high at 1249$ after the release of low inflation rates coming out from US showing that April US CPI core index which was expected to be 1%y/y from 1.1% in March and .1% m/m from 0% in March but it came at 1%y/y and 0% again monthly while the broad figure which was expected to be up yearly by 2.4% and monthly by .1% came at just 2.2% lower than march which was 2.3% yearly and - .1% m/m which could effect negatively on the gold value as a mirror of inflation lowering the market estimation of the inflation outlook upside risks however the gold could get back up as it is still the well-chosen option to the investors who are looking for the best safe haven with the current global missing trust in the bonds attractiveness and increased worries about its rewarding as a fixed income option to the investors who are looking for a saving option of their money value and that's rather than the increasing of the commodities and energy prices which are still pushed up by the current low accommodative levels of interest rate across the broad which is lowering the cost of borrowing from a side and the value of the currency from another side. The gold could creep up above 1200$ making a new high at 1249$ but with the oil falling below 80$ and the fed's repeated downplaying of the inflation upside risks, the gold has been dragged down finding support at 1156$ which has not been even tested this week making a higher low at 1166$ to creep up again above 1200$ trading above 1210$ currently while the gold main support level is still holding at 1124$ which was the bottom of the ascending wave to 1249$.
God Willing, it is important to wait today for US ADP employment change of May to be 59k from 32k in April and by the end of the week May Labor report of US which is expected to show increasing of the non-farm payroll of by 500k from 290k in April and declining of the unemployment rate to 9.8% from 9.9% in April and weaker data can dampen the market sentiment again.
Walid Salah El Din