Market Brief

Risk reduction was the name of the game this week and in Asian trading the slight correction failed to make a dent in the overriding bearish sentiment. Asian regional indices are all trading well in the red, with Hang Seng down -2.8% and Shanghai down -1.34 (at the time of writing). On a side note, yesterday Hong Kong's financial secretary stated that there was no need or intention to change HKD peg to the USD. We are however, hearing increased talk of Asian central banks intervening on the upside to help smooth FX price action. With no significant data releases in Asian session, markets had to be satisfied with rumors, speculation and official comment driven chatter. FX saw small short covering in EUR and AUD making them the two biggest losers in the last few days. The weak comments and divergent comments from G20 officials failed to ease the worrying entrench in bearish sentiment. The French Financial minister Baroin, stated that the euro zone countries agreed to implement all necessary measures to increase EFSF flexibility, stating that implementation actions should be ready by the next meeting. This suggests that the G20 expects that the European parliament will pass their individual votes on the EFSF in the next few weeks. The lack of reaction in the market highlights that in the end, up to this point, no new measures have been implemented and having faith in the thought that Europe can manage it’s own problems is clearly delusional. The meeting will extend over the weekend and will overlap the more important IMF meeting, which means actions are still possible.

According to the FT, the EU is planning to recapitalize 16 of the weakest European banks. We have argued that the first step in halting the European debt crisis would be for a TARP style program. The elimination of a financial system collapse would go a long way in easing investors concerns over a global meltdown. However in the FT report, no French banks were mentioned, which given what we suspect about their cash positions, is slightly odd and erodes some of the optimism around this report.

Today, is all about monitoring official comments with no top tier economic data scheduled for release. The other noteworthy event, will be the SNB who is due to publish their quarterly bulletin. This will be the first report since the SNB enacted with EURCHF floor, so details will be very interesting to read.


By
M.Zohaib Gadit
Forex Trading Consultant