Markets are in somewhat of a foul mood this morning as several commodities continue to sink and the Canadian dollar goes along for the ride.

“It’s a broad selloff in risk assets,” said Scotia Capital currency strategist Camilla Sutton. “It’s really right across assets classes.”

Silver , gold , copper, oil and other commodities all fell as economic jitters mounted. Silver, in particular, has lost its shine after climbing sharply. The loonie stood at 1.0364 at about 6:45 a.m. ET, down from yesterday’s close at $1.0433.

"Overnight fundamentals shocked generally to the downside of market expectations and fed worries about near-term global growth," said Scotia Capital economists Karen Cordes Woods and Derek Holt.

"When combined with disappointing earnings that hit European financials, the impact was to sweep risk appetite off the table onto the floor. A steep plunge in German factory orders, disappointing U.K. manufacturing data, a drop in Australian retail sales, and more Asian central bank policy tightening add to broadening global evidence of a potentially nasty downward shock."

Stock markets are also flashing red today. Hong Kong’s Hang Seng dipped 0.2 per cent and European markets were heading lower. London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were down by between 0.8 per cent and 1.13 per cent. Dow Jones industrial average  and S&P 500 futures also slipped.

"The commodity sell-off continues, with oil futures slipping another $3 to below $107 a barrel, gold hitting $1,500 an ounce. and silver dropping a further 3 per cent to $38 an ounce (and down 22 per cent in the past week)," said BMO Nesbitt Burns economist Sal Guatieri.

"The resource-based currencies continue to take it on the chin, with the Canadian dollar sliding nearly a cent ... S&P 500 futures are pointing to a fourth straight daily decline in equities. Treasuries remain well bid, with the 10-year yield at 3.21 per cent. The loss of investor risk appetite largely reflects concern that rising energy costs will slow the U.S. and global economies."

Avery Shenfeld, the chief economist at CIBC World Markets, said he sees the drop in commodities tied to fundamentals.

"We view the pullback in commodities as fundamentally based, although obviously enhanced by investor flows, the latter explaining why goods as diverse as cotton and copper have moved together," Mr. Shenfeld said.

"The fundamental side of the story may come from markets paying closer attention to the potential growth impacts of monetary tightening in emerging markets, the latest being a rate hike in India this week. China and Brazil, two other [emerging market] powerhouses, also are only part way through a tightening cycle. That, coupled with fiscal tightening across a broad range of developed economies, could have investors second guessing how far they had bid up a range of raw material prices."

Both the European Central Bank and the Bank of England held their key rates steady today.

Article provided via the Globe and Mail

http://www.theglobeandmail.com/report-on-business/top-business-stories/canadian-dollar-sinks-silver-not-so-golden-any-more/article2010847/

" ECB leaves rate unchanged  "..

" it leaves attention firmly focused on whether or not the bank tees up its next raise rise for June  " ...

 The European Central Bank kept euro zone interest rates on hold as expected on Thursday leaving markets focused on whether Jean-Claude Trichet will flag a June hike by declaring the bank is in a state of “strong vigilance.”

The bank left rates at 1.25% at its monthly meeting, having raised them in April to end two years of crisis-induced record low interest rates.

Almost all economists in run up to the meeting had expected the decision. The euro EUR and Bund futures were little changed afterwards.

It leaves attention firmly focused on whether or not the bank tees up its next rate rise for June, or supports the slim majority of observers who see it waiting until July.

“We expect Jean-Claude Trichet to use the term ’strong vigilance’ which would signal that they will raise rates in June,” said Daiwa economist Chris Scicluna, citing recent strong inflation and economic activity data in the currency bloc.

In the past, the ECB regularly used the phrase strong vigilance or alternatively “heightened alertness” to signal a hike was only a month away.

With inflation continuing to accelerate in the euro zone economists expect last month’s 25 basis point rate hike to be the first in a run of increases.

If a June hike is on the cards, it would be the fastest start to a rate rise cycle in the ECB’s history. In 1999 and 2005, the beginning of the last spell of tightening, it waited three months before a implementing a second increase.

“We are looking for the key code word ’strong vigilance’ and for a statement that risks to price stability are still very much on the upside,” said Societe Generale economist James Nixon.

Data released since the April meeting has shown euro zone inflation accelerating to 2.8% in April. The ECB aims to keep it just below 2% over the medium term.

The meeting in Helsinki comes just two days after Portugal announced it had reached preliminary agreement with the EU, IMF and the ECB for a three-year package of support, including help for Lisbon’s banks.

That, and speculation about a possible Greek debt restructuring, is unlikely to blow the ECB off course, however, as it exits the loose monetary policy it employed from October 2008 in response to the global financial crisis.

“If anything the Portuguese package is a positive development for the market in the sense that that removes another source of uncertainty for the time being,” said Nixon. “The sense is that the sovereign debt crisis is abating again and that the ECB can continue to respond to inflation.”

Thursday’s meeting was the first attended by incoming Bundesbank chief Jens Weidmann, who on Monday stuck to the hawkish policy stance of his predecessor, Axel Weber, by saying monetary policy must be normalised.

In his first comments on monetary policy, Weidmann said it was a question “not of ’if’ but rather ’when’.”

ECB policymakers have been at pains to stress the separation of their standard policy tools — interest rates — from non-standard measures, including the unlimited liquidity operations they use to help banks in the periphery that are frozen out of interbank markets.

The ECB said in March it would carry on providing unlimited funding for banks at its three-month operations through to the end of June and would keep full allotment at its weekly and one-month operations, until at least July 12.

With the liquidity taps still on, the periphery’s woes are unlikely to stop the ECB flagging a further rate rise.

The stronger-than-expected inflation April reading, together with a survey showing factories in the euro zone ramped up production in April, have led a number of economists to lean towards a June hike.

Nomura’s Jens Sondergaard saw only a 30% probability of a June rate rise.

“If they sound the strong vigilance alarm tomorrow and hike in June, they are implicitly sending a signal to the market that they are keen to hike … and that will push up market expectations even further, and will push up the euro,” he said.

The euro EUR has raced higher since the April meeting, closing in on $1.50 as the ECB focuses on tackling inflation while the Federal Reserve has signalled it is in no hurry to scale back its support for the U.S. economy.

Article provided via the Financial Post

http://business.financialpost.com/2011/05/05/ecb-leaves-rate-unchanged/

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