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ANALYSIS

Fundamental and Technical Analysis - 10 May 2012

EURO

European stocks declined on Wednesday as investors awaited resolution of Greek coalition talks and yields on Spanish 10-year bonds rose above 6 per cent. 

The Stoxx Europe 600 Index edged lower 0.34 per cent to 249.73 and France’s CAC 40 Index lost 0.20 per cent. The U.K.’s FTSE 100 Index retreated 0.44 per cent to 5530.05.

“The real concern isn’t about Greece, it’s about the euro and whether it breaks up -- that is key,” Mark Tinker, a fund manager at AXA Framlington Investment Management.

“We don’t make a big economic scenario after a couple of days of moves, but I think there is a lot of anxious market repositioning going on right now.

USD

U.S. wholesale inventories rose in March at a slowest pace since November,  Commerce Department data showed on Wednesday.

Inventories rose 0.3 per cent to a record 480.4 billion dollars from February, when they increased 0.9 per cent.

“Firms are in a pretty decent shape on their inventories,” Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, said. “Firms are just being very cautious. I don’t think there’s a lot of visibility on demand going forward, so firms are not willing to assume strong demand six or nine or twelve months out.

Stocks closed lower on Wednesday. The Standard & Poor's 500 shed 0.67%, or 9.14 points, to 1,354.58. The Dow Jones Industrial Average plunged 0.75%, or 97.03 points, to 12,835.06. The Nasdaq Composite Index lost 0.39%, or 11.56 points, to 2,934.71.

“There’s something to worry about here,” said James Dunigan, chief investment officer for PNC Wealth Management. “We expected there would be flare-ups again in Europe. People were scratching their heads why they didn’t show up a little sooner. Certainly as a result of the elections in Greece, the odds of a default and an exit from the euro have increased.”

GBP

The U.K. retail sector contracted in April, compared to the same period last year. Retail sales tumbled 3.3 per cent hurt by the wet weather, the British Retail Consortium said on Wednesday.

“Consumers, struggling to balance their household budgets, remain reluctant to spend unless they really have to and the weakening economy is likely to mean people are even more cautious about their finances,” said BRC director general Stephen Robertson.  

“If the Monetary Policy Committee (MPC) wants to expand quantitative easing, it has no shortage of justifications,” said Simon Hayes, an economist at Barclays Plc in London.

Still, inflation pressures add to signs the MPC may “prefer to hold fire unless a fresh crisis, or more prolonged weakness in demand, makes the case for QE irresistible.”

CHF

Swiss stocks declined for a fifth straight day on Wednesday amid the political impasse in Greece.

The Swiss blue-chip index SMI, a measure of the largest and most actively traded companies, lost 0.70%, or 41.67 points, to 5,936.13.

The broader Swiss Performance Index fell 0.66%, or 36.64 points, to 5,551.38.

“It barely seems possible to form a government coalition which is for or against the austerity measures,” said Christian Schmidt, a technical analyst for equities at Helaba Landesbank HessenThueringen in Frankfurt.

“The political vacuum in Greece is not conducive to building confidence. Worries are justified that further financial aid will be frozen and the country will become insolvent.”

JPY

Japanese stocks declined on Wednesday as Greek political crisis deepened.

The Nikkei 225 fell 1.49%, or 136.59 points, to 9,045.06. The broader Topix erased 1.38%, or 10.74, to 765.83.

“Investors are turning risk averse,” said Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd.

“We don’t know what kind of political coalition will be formed in Greece. It remains unclear if the nation will exit the euro and if that will actually break up the euro.”