European stocks and the euro both eased on Monday, beginning a new week in cautious fashion.
At 12.33 PM GMT, the Stoxx50 fell 0.55% to 2,580.19, in the regional benchmarks space the German Dax traded 0.23% lower to 7,595.06, Southern European markets led the losers with Italian Ftsemib down 1.14% to 16,435.43 and Spanish Ibex 0.92% lower to 8,079.60.
At this point in time investors are waiting for the investment flows. Foreign investors have been strongly “underweight” European stocks therefore if they think that the European affair is going to be solved after the ECB move they should start to switch out of bonds and out of US equities and jump into European stocks.
To support our hypothesis Reuters reported that fund flow data from EPFR showed Europe equity funds posted their biggest net inflows since early May in the week to September 12, as the ECB action encouraged more investors to take on equity risk and move out of conservative debt.
It looks like is not today the day to re-gain exposure to Europe; the common currency eased, edging back from a four-month high hit on Friday. At 12.55 PM GMT, the euro traded down 0.14% at 1.3111$ against the greenback. The US dollar is expected to remain under pressure in the coming weeks as the effects of the US stimulus plan work their way through the system.
The ECB’s plan to help lower the borrowing costs of indebted euro zone countries offered support to the common currency. But the ECB plan is subject to countries asking for help.
The first guessing point arises: Will Spain call for help?
Looking at today news I’m not so sure about it: Spain’s Prime Minister Mariano Rajoy has said he would not accept a rescue that dictated spending cuts. As result the Spanish 10-year bond yields rose to 5.85 percent. The market is behaving as an actual Spanish bailout is priced in, the longer Spain delay the request the more the market will strong arm them into accepting a support package.
Having a look at the commodity side for hints: Gold fell 0.06% to 1,771.70$ an ounce and Oil (Wti) traded 0.26% lower to 98.74$ a barrel, oil touched a high above $100 a barrel on Friday partly due to concerns that unrest in the Middle East and North Africa could trigger supply disruptions.
Will the US market offer fresh foods for our thoughts??