Morning coffee brief

The honeymoon for Chinese stimulus appears over as the short covering in the Asian markets seems to have come to a halt after euro zone worries began to reemerge late in the U.S. trading session.  Image courtesy Willie Cloete: http://www.sxc.hu/profile/PulpdtpDuring yesterday’s U.S. session former Greek Prime Minster Papademos indicated there is a real risk Greece could exit the euro zone, forced by political deadlock surrounding austerity refusals.

Papademos did subsequently clarify his position that Greece has not taken any action, but the markets had already panicked with the euro falling as far $1.27 against the U.S. dollar and it has been moving lower since - currently in early trading to $1.2645. 

As previously mentioned, the markets are all intertwined, causing crude oil to fall to 2012 lows and the Aussie and New Zealand dollars to fall to 6 month lows against the U.S. dollar. Asian traders ran for safety ahead of the informal meeting of European officials in Brussels later today.

During overnight trading the Bank of Japan (BOJ) decidedly to leave the policy target, asset purchase fund, and economic assessment unchanged; a move widely expected by analysts. Notable within the bank’s minutes were officials reiterating a view of “Japan’s economy shifting toward a pick-up phase, although activity has remained more or less flat.”

Japan also released disappointments in MoF reverse auctions in the most recent session, sending the yen down some 30 pips during the overnight session against the U.S. dollar. This may have just been an excuse to take some profits by traders as the disappointing auction news was well telegraphed ahead of the release and coupled with the BOJ taking no action, the yen should find its footing again, at least against other currencies.

Overnight the World Bank released a statement matching the OECD’s cut for China’s 2012 GDP target to 8.2%. The move still leaves the target well above the  Chinese official goal of 7.5%. May’s slowing lending pass was confirmed by China’s largest four banks when they reported only lending ¥34 billion ($5.37 billion) for the first three weeks in May.

The Greek effect was also felt by India’s domestic markets which opened in red, tracking negative cues from global markets and closing 0.49% lower for the day.

Euro zone indexes opened lower across the board to continue the sea of red from Asian markets ahead of the European Union Summit. The indexes taking the brunt of the punishment are the UK’s FTSE 100, Spain’s IBEX-35, and Italy’s FTSE MIB. Leading the way lower are euro zone banks lead by Italian, French and UK banks.

U.S. markets closed mixed after a last ditch effort to rally giving the S&P 500 a gain of 0.6%, albeit not a winning number to write home about, but still, it did allow the S&P 500 print its first two day winning streak since April 26 & 27 this year. The Dow on the other hand, is still waiting for its two day winning streak for the month of May as it slipped into negative territory moments before the close.

Traders will get a second dose of housing data at 10 a.m. EDT when the government releases April new home sales data. Analysts are looking for an increase of 2.1% from March levels to an annual rate of 335,000. 

Also out at 10 a.m. EDT will be the Federal Housing Finance Agency’s latest assessment of U.S. home prices. Analyst are looking for a 0.5% for the month of March compared to February’s numbers.

The Treasury readies for another round of auctions today. It will auction off $35 billion in 5-year notes and the results will be released at 1 p.m. EDT.

A look at key economic data to watch today:

8:30   a.m. EDT           CAD   Core Retail Sales m/m

10:00 a.m. EDT           USD    New Home Sales

10:00 p.m. EDT          NZD    Annual Budget Release

10:30 p.m. EDT          CNY   HSBC Flash Manufacturing PMI


Live Economic Calendar Powered by Forexpros – The Leading Financial Portal

Global companies to watch today:

SAP AG (SAP, quote) traded lower by over 1% in Germany when it agreed to pay $4.3B to acquire US-based Ariba Technology.

Commodity Marker – Electronic Trading

Crude oil

$90.98

-0.87

-0.95%

Nat Gas

$2.679

-0.028

-1.03%

RBOB-Gasoline

$2.9165

-0.0205

-0.07%

Gold

$1,559.30

-17.30

-1.10%

Silver

$27.75

-0.429

-1.59%

Copper

$3.4315

-0.0555

-1.59%

U.S. dollar index

81.85

+0.20

+0.24%

as of 7:32 a.m. EDT

Precious metals corner

Gold and silver traded near intraday lows yesterday afternoon when selling pressure accelerated due to low volumes and the euro dropped like a rock ahead of the much anticipated European Summit. The U.S. dollar strength added to the pressure and continues to add pressure to both metals. Both gold and silver are spiraling lower ahead of the summit today.

ETF holdings

Holdings in the world’s largest gold backed ETF, the SPDR Gold Trust (GLDquote) lost ground once again to 1,265.43 tons as of May 22 lower by 17.51 tons from the previous trading day.

The iShares Silver Trust (SLV, quote) holdings once again held at 9,649.21 tons on May 22nd from the previous trading day. SLV is the world’s largest silver backed ETF.

Fundamental outlook

Gold and silver are trading lower in  U.S. electronic trading. Look for price action to continue lower on the day as hopes evaporate for the informal European Union meeting scheduled for later today to yield steps to help with the region’s debt crisis.

Looking at the pre-market we find:

Pre-markets are quiet ahead of the start of the trading week with the following ADRs with activity:

TSL     TRINA SOLAR LTD-SPON ADR

BMO   BANK MONTREAL QUE

Bottom line: U.S. futures are suggesting a down opening today after the S&P 500 posted a two day winning streak. Traders will be focused on the U.S. housing data scheduled for later today along with the European Union Summit. Gold and silver are falling on fears of inaction from the Summit. Although one would think gold would go up in the case of inaction but in this case inaction means the U.S. dollar remains strong. For more detail surrounding gold click here.