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updated: 9/10/2012 6:57 AM

Markets steady as traders await key euro events

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  • Financial markets have started the week on a fairly flat note as traders wait for further developments in Europe's debt crisis and the U.S. Federal Reserve's latest policy meeting.

      Financial markets have started the week on a fairly flat note as traders wait for further developments in Europe's debt crisis and the U.S. Federal Reserve's latest policy meeting.
    Associated Press

 
Associated Press

LONDON -- Financial markets have started the week on a fairly flat note as traders wait for further developments in Europe's debt crisis and the U.S. Federal Reserve's latest policy meeting.

Traders will have a number of events to monitor in Europe over the next few days including a meeting of euro finance ministers as well as the German Constitutional Court's verdict on the legality of Europe's planned permanent bailout fund.

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Debt inspectors are also due to meet with the Greek government as they prepare their latest assessment of the country, which could go determine its future in the euro currency.

Stocks and the euro posted solid gains last week as tensions over Europe's debt crisis eased after European Central Bank president Mario Draghi outlined a new bond-buying program designed to ease the pressure on Italy and Spain.

"There does still seem to be an air of optimism around, particularly regarding Europe," said David Jones, chief market strategist at IG Index. "While the economy is far from out of the woods yet, it seems the chances of lurching into another sovereign debt crisis have been greatly reduced by Mario Draghi's proposal."

Following sizeable gains last week, stocks are taking a breather Monday. In Europe, Germany's DAX was up 0.1 percent at 7,222 while the CAC-40 in France was unchanged at 3,519. The FTSE 100 index of leading British shares was also flat at 5,794.

The response in the bond markets continues to be positive, with the yield on Spain's 10-year bonds down a further 0.44 percentage point Monday to 5.56 percent. For a number of months now, Spain's 10-year yield has traded around the 7 percent mark that is widely-considered unsustainable in the long-run.

In the currency markets, the euro gave up some of Friday's big advance, trading 0.3 percent lower at $1.2776. On Friday, Europe's single currency rose to $1.2818, its highest level since May 22, after a lower than expected 96,000 increase in U.S. nonfarm payrolls in August ratcheted up expectations of another monetary stimulus from the Fed.

Fed chairman Ben Bernanke has said U.S. jobs data will be crucial in determining whether the central bank backs another monetary injection.

Analysts remain skeptical about whether the Fed will do anything more than reiterate its low interest rate guidance at the conclusion of its two-day meeting on Thursday, as it won't want to be seen as getting involved in the middle of the U.S. presidential election.

"There is a danger that the Fed could become the focus of a major Republican-Democrat argument," said Fawad Razaqzada, market strategist at GFT Markets.

Earlier in Asia, stocks were mixed after figures showed Chinese imports shrank and export growth was muted in August. That came on top of the release over the weekend of data showing sluggish Chinese industrial production and investment.

Even so, the Shanghai Composite Index gained 0.3 percent to 2,134.89 and the smaller Shenzhen Composite Index added 0.9 percent to 899.72.

Japan's Nikkei 225 fell marginally to close at 8,869.37 after the government said the economy grew at a slower pace than earlier estimated for the April-June quarter. Growth stood at an annual 0.7 percent, slower than the 1.4 percent given in August.

South Korea's Kospi fell 0.3 percent to 1,924.70. But Hong Kong's Hang Seng gained 0.1 percent to 19,827.17 0.

Oil markets were also fairly subdued with the benchmark New York rate up 8 cents to $96.50 per barrel.

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