By Francisco Miñana
Date: Wednesday 30 May 2012
The spotlight has definitely moved away from Greece to Spain, which is getting the full beam treatment after the European Central Bank (ECB) reportedly rejected Spain's plan to inject sovereign bonds into nationalised lender, Bankia.
Mainland European benchmark equity indices opened with an average loss of 0.8% on Wednesday. Spain's Ibex35 suffered greater losses as Spain’s risk premium sets a new record high since the creation of the Eurozone at 517 basis points.
In the foreign exchange market, the euro continues to be pressured lower versus the majors. The euro/dollar has broken through the support level at $1.2500, where a major medium-term trend line crosses. The next big support is at the June 2010 low of $1.1901. Meanwhile, the euro/yen trades between 99 and 100 and the euro/Swiss franc remains anchored to the 1.2000 – 1.2010 level. The Bank of Japan and the Swiss National Bank appear to be halting the appreciation of the yen and the Swiss franc with continuous interventions. Sterlng trades above €1.2500 but remains within a trading range.
The dollar is showing strength as it rises versus the pound and the yen while the broad-based dollar index continues to rise. Carry trade currencies are falling, led by the aussie, in a context of greater risk aversion and China’s denial of new stimulus rumours. The markets had been speculating that the Asian country would introduce $315bn dollars’ worth of measures, half of the 2008 stimulus package.
On the macroeconomic front, retail sales for April fell 0.2% monthly in Australia compared to an estimate of 0.2% growth and the previous month’s +1.1%. In Spain, Consumer Price Index (CPI) came in below 2%, same as in Germany yesterday. This provides the ECB with an argument to approve more expansive monetary policy. Coming up, the Eurozone will release money supply data and the European Commission will publish confidence surveys and its recommendations on economy policy. In the United States, there will be pending home sales data.
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