Global Markets Trade Lower on Bernanke Remarks

Asian, European Equities Trade Modestly Lower

Asian equity markets traded lower overnight as comments from Fed Chairman Ben Bernanke rippled through the global marketplace following a speech to the Economic Club of New York yesterday afternoon. After suggesting that “significant” challenges could continue to hamper a revival of the world’s largest economy, Big Ben certainly hit some market bulls with a reality check by asserting that “headwinds” are sure to drag on a revival. While these remarks did little to shake the risk rally that was seen throughout the New York session (the Dow closed 136 points higher), the subsequent Asian gathering saw a slightly different outcome. Having additional time to digest Bernanke’s commentary, the MSCI Asia Pacific Index was unable to sustain the recent pick-up in risk, and ended the session in the red along with others, such as Japan’s Nikkei Index. Following in the footsteps of Asia trading, European bourses faced a similar fate of downtrodden equity results—an outcome that can largely be attributed to the remarks made by Bernanke. Just one day after hitting the best levels since October 2008, Europe’s Dow Stoxx 600 Index slipped from its 13-month highs and gave back a modest -0.21%.

EURUSD Moved by Rhetoric

In the currency markets, EURUSD is currently trading lower after gaining enough steam to make a push and touch the significant 1.50 handle. Despite fading back slightly, the fact that the euro was able to shoot back to 1.5000 even after Bernanke made a rare mention of the USD shows that the market as a whole has largely brushed off his remarks surrounding the Greenback. While the Big Dollar did trade modestly stronger while the Chairman was speaking, the “rally” was short-lived, as Mr. Bernanke mentioned that economic shortcomings will keep lending rates low for an extended period of time.

While the EURUSD hit a high for the week by briefly clearing the 1.50 figure, short-term euro strength has been repressed by a general easing of risk demand and central bank rhetoric. EURUSD has been modestly hit this morning, as weak equity markets have forced the hand of traders who have bailed from their long euro positions (or dollar short covering) after another failure of 1.5000. Coupled with market action, the ECB’s Trichet has been on the wires early this morning to reiterate his stance in supporting a strong USD. Aside from referring to Bernanke’s statement as “very important,” Trichet has also repeated that Europe is not pushing its currency for global use—or, in other words, that the euro is not designed to be a reserve instrument. Off the back of Trichet’s comments and an overall reduction in risk, EURUSD has been hit, forcing the pair to trade south of the 1.49 region. Over the short-term, look for the 1.4825 area to provide some very solid support in containing this modest slip.

Gold and Oil Update

Taking cues from the general weakness throughout equity markets around the globe, the USD has been trading with a humble “bid” tone, forcing commodities off their highs. Crude oil has sank as much as 1% to trade just north of $78/bbl ahead of a report tomorrow which is expected to show American stockpiles have grown as outlined in the U.S. Department of Energy weekly survey. Also trading lower, gold has fallen discreetly from yesterday’s all-time high of $1143/oz to currently sit toward $1134/oz. As always, keep an eye on the North American equity markets to be a key driver in the short-term direction of commodities and currencies alike.

By Jamie Heighway, Market Analyst
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