While you were sleeping: Focus on euro meeting

Tuesday 24th January 2012

The euro advanced to its highest in three weeks as European Union officials met for further discussions on a new fiscal pact as well as Greece's negotiations with its private creditors.

Meanwhile, International Monetary Fund managing director Christine Lagarde recommended the EU increase their rescue funds for struggling member nations.

Governments should add “substantial real resources to what is currently available,” she said in Berlin.

EU finance ministers will continue their work on a new fiscal pact aimed at lowering budget deficits and discuss the latest on Greece's progress towards a debt swap agreement needed to meet the terms of another bailout for the debt-laden nation.

French Finance Minister Francois Baroin said in Paris that negotiations between Greece and its private creditors were making “tangible progress". Germany's Wolfgang Schaeuble, however, said that any deal must help Greece lower its debt to "not much more than 120 percent of GDP" by the end of the decade, from about 160 percent now.

Wall Street was down, after rising earlier in the day. In early afternoon trading in New York, the Dow Jones Industrial Average fell 0.30 percent, the Nasdaq Composite Index shed 0.34 percent and the Standard & Poor's 500 Index declined 0.28 percent.

In Europe, the Stoxx 600 Index closed with a 0.5 percent gain, while the euro advanced on hopes of decisive action to combat the region's crisis.

The euro gained 0.8 percent to US$1.3042 against the US dollar, off a session high of US$1.3052, the euro's best against the dollar since early this month, according to Reuters. Against the yen, the euro strengthened 0.8 percent to 100.34, with a session high of 100.48 its best since December 30.

“The price action is putting the cart before the horse by assuming that since risky currencies and the euro are rallying that something is going to get done in Europe,” Michael Woolfolk, senior currency strategist at Bank of New York Mellon, told Bloomberg News.

“There has been quite a sea-change in the past couple weeks in terms of market sentiment and risk appetite and those that were talking about the euro going to parity are eating their words.”

As a result, the appeal of the perceived safety of US Treasuries declined. The 10-year yield was last up five basis points at 2.07 percent, according to Bloomberg Bond Trader prices.

In a research note, Goldman Sachs recommended shorting 10-year Treasury bonds in anticipation that improved economic performance will push yields higher, Reuters reported.

"Yields have traded in a tight range around an average 2 percent since September, including so far into 2012," Goldman said in its note. "We are now of the view that a break to the upside, to 2.25-2.50 percent, is likely and recommend going tactically short."

Investor Barton Biggs told Bloomberg News he remained bullish on equities. “I’m terrified I’m not long enough if we’re going to have a strong rally here, which we could,” he said, adding his net-long position in equities is 65 percent. At the same time, “I’m terrified I’m too long if the apocalypse is coming in Europe,” Biggs said.

On the earnings front today, Halliburton failed to deliver and investors dumped the stock, which dropped almost 4 percent.

Oil received a boost, with crude for March delivery last up 1.2 percent, after the EU agreed to ban oil imports from Iran in an effort to apply pressure on the country's unwelcome efforts in nuclear development. The ban fuelled concern Iran might make good on threats to close off a key supply route for crude shipments.

(BusinessDesk)

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