Success in Portugal provides relief for Eurozone;
Spain & Italy set to auction €9bn in bonds today;
Investor optimism and risk appetite returns to the markets;
BoE and ECB expected to leave interest rates alone today;
Asian markets up on positive sentiment and commodities;
US warns of possible food shortages.
The continuous and intensifying Eurozone pressure was relieved yesterday as Portugal sold all of the government bonds that it had offered, and at a price that most feel gives them time to avoid a bail out from the ECB. EU ministers warned, however, that the reported €1.25bn raised from 4 and 10-year bonds did not guarantee that Portugal had avoided becoming the third Eurozone country to avoid a bail out. To finance its budget and redemptions, Portugal will need to sell as much as €20bn in bonds in 2011.
Spain and Italy will be looking to emulate Portugal’s success as they go to the auctioneers today with their own offering of government bonds. Spain will try to sell as much as €3bn of 5-year debt, and Italy will auction €6bn due in 2015 and 2026.
The US government surprised traders yesterday by cutting stock forecasts for key crops, which added strength to the UN’s Food and Agriculture Organisation’s warning last week of a repeat of the 2008 food crisis if prices rise further. Analysts say the new figures leaves no further room for weather problems.
The news of auction-success in Portugal buoyed the markets yesterday and saw US and European equities return to two-year highs. The speculation that EU officials were looking at significantly boosting the Eurozone bail out facility also supported investor optimism and their risk appetites.
Despite the boost to markets given by yesterday’s auctioneer, European investors may take a breather today after a busy two-day rally, and with the next round of auctions in their sights. Traders will also be watching the US jobless claims figures that come out today, after the recent pick up in US economic data that prompted many economists to lift growth predictions. The BoE and ECB announce interest rate decisions today, and both are expected to leave them where they are. Financial bookmakers forecast the FTSE 100 to open a few points lower, the DAX to open around 10 points higher, and France’s CAC around 5 points up.
Asian markets advanced overnight, with the MSCI Asia Pacific Index set to close at its highest point since June 20, 2008, as investors speculate that the US economy is continuing to strengthen and that the Eurozone debt crisis can be contained.
The euro slipped from one-week highs overnight as investors consolidated positions and wait for the outcome of the Spanish and Italian auctions later today. While an improving forecast for the Eurozone financial situation will help boost the euro, many analysts believe that the headline risk for the currency remains high, and that real movement will only happen if there is a negative move on the dollar.
Oil and gas prices surged yesterday as the price of oil neared $100 per barrel due to supply problems in the North Sea and Alaska, declining US inventories, and the generally optimistic view of global recovery.
Corn and soya beans climbed to their highest levels in more than two years as the fear of global food shortage grows. Gold eased back overnight as bonds sales in Europe eased the community’s financial situation and made it less attractive to safe-haven investors. Silver was steady and, despite its stellar rise in 2010, is expected to continue its steady growth this year.
DATA AT 0700 GMT (FT.COM)
FTSE 100: 6,051 +0.61%
S&P 500: 1,286 +0.90%
Eurofirst 300: 1,164 +1.46%
Nikkei 225: 10,590 +0.73%
Shanghai Comp: 2,827 +0.20%
Dow: 11,755 +0.72%
WTI Crude: $91.84 -0.02%
Brent Crude: $98.03 -0.09%
Gold: $1,386 +0.05%
Copper: $4.40 0.00%
Corn: $6.38 +1.11%
$ per € 1.3094 -0.26%
$ per £ 1.5742 -0.13%
¥ per $ 83.05 +0.11%
¥ per € 108.75 -0.17%
€ per £ 1.202 +0.16%