Greece's unresolved debt restructuring knocked the euro from a six-week high



Forex – Greece's unresolved debt restructuring knocked the euro from a six-week high against the U.S. dollar and drove it to a 4-1/2-month low against the safe-haven Swiss franc on Monday. The euro did cut some of the earlier losses after European Union leaders reached an agreement on the introduction of a permanent euro zone financial bailout mechanism, with details to be worked out at a later date. The euro is on track for gains against the dollar this month but overall sentiment is bearish as the debt crisis rumbles on and the prospect of a euro-zone recession looms. The Australian dollar moved further away from a three-month peak hit in the wake of the U.S. Federal Reserve's pledge last week to keep interest rates low and after rating agency, Fitch put major Australian banks on a negative ratings watch. A resurgent yen raised concern Japanese authorities could intervene to weaken it.

Mounting concerns that Portugal could follow Greece in needing a second bailout and debt restructuring began to undermine sentiment on the euro even before it hit a session low against the dollar. Those concerns persisted even though European Union leaders reached an agreement on the introduction of a permanent euro zone financial bailout mechanism, with details to be worked out at a later date. U.S. consumer confidence unexpectedly fell in January as more Americans worried about the country's weak job market, according to a private sector report released on Tuesday. Traders, however, remain on alert for possible Japanese intervention of buying U.S. dollars while selling yen to slow or stop the Japanese currency's strength. The last time Japan intervened to siphon strength from the yen was on Oct. 31.

The euro drifted lower on Thursday, unable to hold gains made after Federal Reserve Chairman Ben Bernanke defended low interest rate policies, a negative for the greenback, saying the U.S. economy still needs official support. Investors experienced a volatile session that played Bernanke against a still unresolved Greek debt restructuring, despite rhetoric that a deal was imminent. Investors are also still concerned Portugal could need a second bailout or even follow in Greece's footsteps and demand its debt holders take a loss, or "haircut," on their holdings, after yields on Portuguese government debt reached euro-era highs this week.



Indices – Stocks slid on Monday on worries Greek and Portuguese debt loads could weigh on regional and global growth, although hopes the U.S. economy could decouple from European woes helped U.S. equities close off the day's lows. European shares closed at a two-week low as banks bore the brunt of the sell-off. Consumer spending in the United States was flat in December as households took advantage of the largest rise in income in nine months to boost their savings, setting the tone for a slowdown in demand early in 2012.

U.S. equities and the euro slid on Tuesday after weaker-than-expected U.S. economic data added to gloom over ebbing hopes for a Greek debt restructuring deal. Markets had started the session on a more optimistic note, with Greek Prime Minister Lucas Papademos saying late on Monday that he hoped to reach a deal with private creditors over restructuring 200 billion euros of debt by the end of the week. But that optimism faded as traders saw little progress in resolving the euro zone sovereign debt crisis after a summit of regional leaders on Monday. A steeper-than-expected decline in U.S. home prices in November and a souring in consumer confidence in January weighed further on markets, highlighting the hurdles for the economic recovery in the United States, the world's largest economy. With a muddled outlook for corporate earnings in coming weeks, investors pulled back from riskier assets such as stocks and the euro.

The euro rose on speculation a Greek debt deal was close at hand on Wednesday while Wall Street stocks rallied after a report showed that U.S. manufacturing activity grew at its strongest pace in seven months in January, shrugging off data suggesting Europe is struggling with fallout from its festering debt crisis. The U.S. data helped power an almost 2 percent rise in European shares, which also got a boost from data showing that China's manufacturing output was no longer contracting. Investors also remained cautious ahead of the U.S. non-farm payrolls and unemployment report for January on Friday, keeping prices in check across financial markets. Bernanke, in testimony to Congress, said he was seeing signs that some of the uncertainty dampening U.S. business investment, including European banking woes, might be waning. But Bernanke said it was too soon to say whether the United States would remain unscathed by troubles beyond its borders.



Commodities – Agricultural markets such as soybeans and cocoa rose sharply due to tighter supply forecasts. Soybeans notched a one-week high and headed for the third straight weekly gain amid growing export demands and forecasts for lower production in South America.

Sugar prices remained stuck within a tight range although prices closed higher as Investors took positively to the U.S. Jobs data, whilst remaining cautiously optimistic after encouraging euro zone economic data.

Gold bucked the trend falling for the first time in four sessions, as the dollar strengthened in response to the larger-than-expected rise in U.S. payrolls for January.

Copper prices slipped mid-week as persistent concerns about the euro zone crisis weighed, and uncertainty prevailed about the demand outlook from China. The economically-sensitive base metal rallied alongside a sharp move in global equities driven by strong labour market and services sector data from the U.S. that reinforced confidence about the pace of recovery in the economy.

Cotton prices were lifted on Friday after closing lower for two consecutive days as better sentiment as traders look ahead to Thursday’s U.S. Department of Agriculture monthly supply and demand report.

Coffee prices ended the week slightly lower after failing to provide any strong direction, as speculative profit-taking weighed on the market ahead of the U.S. data release.



Crude Oil – Oil prices fell on Monday as stalled negotiations on a deal to restructure Greece's debt revived concerns about the economy while the risk that Iran might quickly halt crude exports to Europe limited losses. Trading was volatile and while Iran did not act to ban exports to the EU over the weekend as some had feared, the possibility Tehran may yet halt exports to the EU, along with data showing improved European economic sentiment and a successful bond auction in Italy, helped limit oil's losses. Saudi Arabia said it could continue to meet oil market shortages because of its investments in maintaining production capacity. Brent crude edged higher while U.S. oil slipped on Tuesday, as disappointing U.S. data reined in prices that had surged on hopes Greece could reach a debt deal and on a European Union move toward budget discipline. Iran and U.N. nuclear inspectors completed a round of talks, termed "constructive" in a report by the semi-official Fars Iranian news agency. The news softened support from concern that U.S. lawmakers preparing a vote on more sanctions might trigger a supply disruption. The dispute between Iran and the West over Tehran's nuclear program and whether it is being used to make atomic weapons remained a focus in the market.

Brent crude rose on Wednesday as upbeat Chinese manufacturing data and concerns about the standoff between Iran and the West outweighed data showing a large build in U.S. oil inventories. U.S. crude oil inventories rose more than expected last week as gasoline demand fell to an 11-year low, data from the U.S. Energy Information Administration showed on Wednesday. Crude stocks rose by 4.18 million barrels in the week to Jan. 27, the data showed, compared with a 2.4-million-barrel build forecast in a Reuter’s poll of analysts. In addition to higher stockpiles, U.S. crude was hampered by data showing a slower pace of job creation in the private sector, although manufacturing growth picked up in January.

Prices rose for a third straight day on Thursday and U.S. crude dropped more than 1 percent in heavy trading that saw the price differential between the two contracts widen close to three-month highs. Tension between Iran and the West continue to be a critical factor lending support to oil prices.

Natural Gas

Natural Gas – U.S. natural gas futures seesawed on either side of positive territory early Monday, with some cool weather in consuming regions of the nation early in the week expected to limit the downside. In addition, expectations for more production cuts after prices sank to 10-year lows a week ago were seen firming prices despite bloated winter inventories and fairly mild weather on tap in most long-term outlooks.

Gas futures ended sharply lower on Tuesday as forecasts for mild weather for the next week dimmed prospects that demand would be strong enough to soak up record-high supplies. With production still running at record highs and inventories on track to end winter at a record high, most traders expect prices to remain on the defensive without much colder weather to kick up heating demand.

Natural gas ended lower on Wednesday for a third day as record-high supply levels and mild weather forecasts through mid-February continued to weigh on the market.

Gas futures ended higher on Thursday after three straight losing sessions, backed by short covering after a government report showed a weekly inventory draw slightly above market expectations. The U.S. Energy Information Administration report showed domestic gas inventories fell last week by 132 billion cubic feet to 2.966 trillion cubic feet. Traders and analysts polled by Reuters had expected a 127-bcf decline. It was the second straight week that EIA storage data was slightly supportive versus market expectations. The weekly storage draw sharply widened the surplus relative to last year by 55 bcf to 586 bcf, or nearly 25 percent. It also added 54 bcf to the excess to the five-year average, raising that total to 601 bcf, or 25 percent. Inventory withdrawals this winter are running more than 300 bcf, or about 30 percent, below average.

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