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Financial Focus: 16th December 2010

Moody’s Spanish warning sends Euro lower;
Eurozone contagion fears halts market rally;
German resistance over new Eurozone rescue system;
Commodity prices dip as concerns for Europe grow.

Moody’s warning to Spain on Wednesday refocused attention on the Eurozone debt, just a day before Spanish 10 and 15 year debt auctions and at the start of the summit of EU leaders where they will discuss a new financial rescue system for the Eurozone.

Germany’s insistence over the inclusion of terms that allow the use of a new Eurozone rescue system only as a last resort, is likely to limit the scope of the agreement made at the EU summit, and leave Europe’s leaders with a plan that may fail to convince the markets that the Eurozone debt problem is any closer to being resolved.

European shares ended their longest winning run in six months yesterday, after Moody’s warned that they may lower Spain’s debt rating.

Trading is expected to be volatile across European markets today, with investors unlikely to make big decisions prior to the meeting of EU leaders.  The FTSE and other European markets are likely to open flat to slightly lower as investors pause for  breath following the near two-week rally.

US stocks suffered a third straight sell-off at the close of yesterday’s session, indicating that investors are taking profits and are unlikely to force the Stateside markets to new levels before the end of the year.

Japan’s Nikkei traded flat for a fourth straight session overnight as recent optimism was dampened by Eurozone debt worries and concerns about overheating in the market.

The euro touched a record low yesterday against the Swiss franc, and a two-week low against the dollar as Eurozone contagion fears resurfaced with Moody’s warning to Spain.  Rising US Treasury yields further boosted the dollar to a 10-week high against the yen.  Currencies are more stable today, with traders waiting to see the outcome of the EU summit.

Oil prices were steady to lower on Thursday with positive data out of the US being weighed down by the concerns over European debt.  A rally in the dollar put further pressure on oil prices, as fuel becomes more expensive to holders of other currencies.

Spot gold was steady during Asian trade today, as the dollar held onto gains following upbeat US data and ahead of the EU summit meeting. Copper is down 0.4%, but other industrial metals are holding their ground.

Regardless of short-term fluctuations of commodity prices, which can be determined by the price of the dollar, recent figures show that new investments in US commodity products and mutual funds hit three-month highs in November.  The Commodity Futures Trading Commission, concerned about excessive speculation in the sector, is looking at ways of limiting the holding that any one investor can hold in the commodity markets.

FTSE 100: 5,882 -0.15%
S&P 500: 1,235 -0.51%
Eurofirst 300: 1,127 -0.46%
Nikkei 225: 10,313 +0.01%
Shanghai Comp: 2,909 -0.49%

$ per €: 1.3222 +0.11%
$ per £: 1.5563 +0.14%
¥ per $: 84.25 +0.02%
¥ per €: 111.38 +0.12%
€ per £: 1.1769 +0.07%

WTI Crude: $88.43 -0.21%
Brent Crude: $92.12 -0.09%
Gold: $1,381 -0.32%
Copper: $4.11 -0.40%
Corn: $5.85 +0.13%

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