Risk Aversion Keeps Markets Under Pressure; Gold Surges to New All Time Highs

Risk aversion is still taking its hold on equity markets as investors sought safe haven assets during the Asian session and treasury spreads widened in the Eurozone. Asian and US stock markets closed lower in the day and the EUR/USD has moved down to 1.4160-1.4220 and the USD/JPY is starting to flatten out at 77.00-77.45. The S & P 500 dropped -2.55%.

Consumer spending for the month of June in the US dropped to the lowest level since the end of 2010, which is evidence that domestic demand is not seen as driving the economic recovery in the US. This report is also leading to downgrades to forecasts for the employment data that will be released on Friday. A slowdown in consumer confidence and corporate earnings has led many to conclude that we will see a negative surprise in the non farm payrolls.

Both the US Senate and President voted to approve the proposed debt ceiling increase, which will raise the available loan limits and cut $2.1 trillion from federal spending. Moody’s released a statement saying that there is no change to the US credit rating (currently at AAA) as the deal that was passed is long term in nature (Republicans were looking for a short term deal). S & P has released any statement to this effect but there are no significant changes expected. Today, ADP employment data and the ISM services report will be released.

Italian finance ministers held a meeting on Tuesday in light of the current market uncertainty (which has pushed Italian long-term treasury yields to record levels). Their conclusion is that the current turmoil is the result of non-domestic influences with the debt problems in the US and Eurozone creating additional uncertainty and trade obstacles. Eurozone PPI was released for the month of June and came in unchanged for the monthly number and a rise of +5.9% for the yearly number. In Switzerland, retail sales rose 7.4% for the June yearly figure and manufacturing PMI surprised to the upside at 53.5.

In Japan, the Finance Minister (Noda) continues to make comments saying the Yen is inappropriately valued and that the bank is preparing to intervene in the currency markets (selling Yen). The BoJ Governor (Shirakawa) suggested that the bank is biased toward injecting additional monetary easing and this could be announced as soon as Friday.

In Australia, trade data was released, coming in below expectations and sentiment was dragged down further by weak retail sales data for the month of June. In the UK, construction PMI rose to 53.5, which beat estimates of 53.1 but the more important figure will be the services indicator, which will be released tomorrow. spread betting explained