Stronger Markets Yet Tensions Still Elevated

FXEmpire   |  September 29 2011 5:39 EDT

By FX Empire.com

Today German lawmakers will vote on changes to the European Financial Stability Facility (EFSF) afterSloveniaandFinlandgave their approval earlier this week. An approval would give the possibility for Germany to offer emergency loans to governments.

As the most influential country inEuropeis believed to approve the expansion of a bailout fund which could help contain the sovereign debt crisis in the region, the euro managed to rise to a one week high against the U.S. dollar trading around 1.3650 as of this writing.

An additional support was given to the euro by the improvement in the German unemployment rate to 6.9% in September from 7.0% in August. The pound is also dragged higher trading around 1.5680 especially after U.K. reported a better than expected mortgage approvals report and a rise in net consumer credit.

The possible approval on the EFSF byGermanylowered some of the fears that were dominating the financial markets this morning, increasing inventors’ demand on the higher assets, which weakened the U.S. dollar which is trading around 77.50 as of this writing.

Yet this morning investors were worried about the incapability of the European leaders to contain the sovereign debt crisis properly and prevent its spread. Thereby markets were pricing the worst possible scenario, which is a default byGreeceand a possible fall into recession byEurope.

This brought losses within the Asian and European stock markets this morning. The MSCI Asia Pacific Index fell today 1.1% at 09:44 inTokyo, while Hong Kong’s financial markets, schools and government offices were closed today as Typhoon Nesat was passing the country and now is heading towardsChina.

InEurope, some indexes reserved the early losses, where the CAC 40 rose by 0.13% as of this writing. Yet fears from the spreading debt crisis in the region is keeping the downside pressures on the European equity markets, where the FTSEE 100 fell by 0.55% while the DAX fell by 0.09% as of this writing.

Meanwhile some investors are holding their breath until later in the day, when theU.S.will release its final GDP reading for Q2, in addition to the jobless claims and the pending home sales. Growth is believed to continue to be weak, yet with a slight improvement from the previous reading to 1.2% from 1.0%.

However the focus is believed to remain onEurope, awaiting more signs related to the debt crisis. Therefore tensions in markets will continue to be high, sentiment vulnerable and cautious strong; this could bring volatility within the financial markets and spur demand on lower yielding assets suddenly.

Commodity markets saw some gains today, on believes the German lawmakers will approve the expansion of the bailout fund which could spur economic growth and preventGreecefrom defaulting. Thereby crude oil rose today almost 3 dollars trading around $82.35 per barrel as of this writing.

Meanwhile gold is gaining momentum today as tensions are still high, which keeps demand on the safe haven gold elevated. The precious metal is trading around $1630.00 after gaining more than 50 dollars since this morning. Silver gained too trading around $31.11 per ounce.