Monti and China Weigh on Markets

By FX Empire Analyst - Barry Norman
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Market mood was seen as depressed after Italian Prime minister Mario Monti warned that “psychological dissolution” within the 17-nation Euro area could undermine the future of the bloc and could lead to a potential breakup. However, better than expected jobs data from the U.S on Friday continue to soother market optimism. After an eventful last week, market moves are most likely to remain docile pertaining to thin economic data this week from the U.S.

In an interview published this weekend, Monti Italy’s prime minister has warned that the eurozone’s sprawling debt crisis has created resentment amid the bloc’s nations, which could ultimately trigger a breakup of the wider European Union.

Mario Monti told German news magazine Der Spiegel that eurozone tensions over the past few years ‘‘bear the traits of a psychological dissolution of Europe,’’ adding that Europe ‘‘must work hard to contain it.’’

Later today, Federal Reserve chairman Ben Bernanke is all set to speak on Economic measurement and his comments on the U.S economy would be ardently looked at after he refrained from any monetary easing last week. However, the week on the whole is likely to be dominated by a series of economic releases from the world’s second largest economy China and any uncanny figures could have a significant downside bearing on the market moves.

As the week begins, commodities were seen steadying after posting some smart gains during the weekend bolstered by a better than expected US non-farm payrolls data. The focus has again turned on the debt-laden Euro Zone countries and rise in Spanish bond yields close to danger level of seven percent intensified worries over further deterioration, knocking down euro and equities.

The euro inched lower from its one month high level as investors turned wary over the prospects of Spanish bailout.  Extending the previous session gains, spot gold inched higher and was floating above $1600 an ounce while, spot silver was held just below $28 an ounce. The CFTC data released last week showed that the hedge funds and money managers had raised their net long positions in gold and silver futures with net longs in gold rising to its highest since the week of June 19th. Meanwhile, sentiments were mixed in the base metal segment and traded mostly steady in LME waiting for leads for further directional moves.

Fresh assurances by Chinese central bank to support the economic growth provided firm support apart from the previous week’s jobs data. Crude oil prices softened after posting its biggest gain in five weeks the previous session. In the Indian scenario, commodities were swinging between positive and negative territories owing to wide swings in currency.

On traders’ watch list for this week is the release of a slew of economic data from China which will provide an update on the economic health of the world’s largest energy consumer and its corresponding energy demand.

China will be releasing a whole bunch of macro data for July in the later part of the week. Major releases include: consumer price index, producer price index, fixed asset investment, industrial production, trade balance, retail sales, new loans and M2 money supply.

China’s June trade data released last month showed demand for imports falling more sharply than expected, leading to a widening of the trade surplus and stoking concerns about an economic slowdown.

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