Eurozone rate outlook to put squeeze on exporters?

Eurozone rate outlook to put squeeze on exporters?

Torben Krogh Nielsen says he\'s amazed at market\'s complacency toward German exporters, who are in direct line of fire from higher rate outlook following ECB\'s Trichet\'s hawkish comments in Ireland

Head of market strategy David Karsbøl notes that the lack of dramatic volatility following hawkish comments today by ECB president Jean-Claude Trichet in Ireland, who has announced plans to hike Eurozone rates, in a bid (among other reasons) to put the brakes on Ireland’s rapidly spiralling housing market. \"EUR/USD has moved much higher in recent months and we expect that trading levels today were not a good technical spot for establishing new longs. Those in the market who know Trichet know that he is a ‘slow hawk’ – in other words, he’s not going to hike rates tomorrow. He’ll migrate toward higher rates, which will send EUR higher in the long term, but won’t spark much in the way of sudden volatility in the short term.\"

But equity strategist Torben Krogh Nielsen says Trichet’s hawkish bent is sure to have ramifications for European equities, and that the elevated European rate outlook due to housing market woes in Ireland and Spain will likely first impact shares in Germany, of all places. \"Trichet has his inflation-targeting credentials in order. The trend higher in Eurozone rates will put a squeeze on European equities and will certainly halt the continued climb of Germany’s DAX index, as the relative strength of EUR against USD on currency markets tends to impact German shares first,\" says Krogh Nielsen, adding:

\"I’m surprised to see how complacent investors are with respect to these German industrial companies – robust exporters with exposure to the US dollar, and to Asia for that matter. There’s been no breakdown in these groups even with relative USD weakness. These groups should be trading at far less attractive multiples, but seem be getting a rather unfair boost from the broader bull market. From my standpoint, I’d stay away from German industrials right now – a case in point being BMW, which is simply too exposed to EUR strength.\"

Futures strategist Alan Plaugmann says the market is positioning for \"no surprises\" ahead of today’s weekly crude oil inventories. \"Yesterday’s rally in crude has been put down to short-covering after six consecutive negative closes for crude oil - traders buying back short positions ahead of the data today. Regardless of what you think about the supply-demand dynamic for crude oil in the longer turn, momentum in the market is bearish right now, barring any surprises in the inventory data today, and this is a story that’s hinging very much on the outlook for gasoline. We were staying short today at the $62.25 level, all the way down to $60.90 intraday.\" Precious metals came under pressure in yesterday’s session, with losses led mostly by gold as USD gained ground. Plaugmann notes that USD looks set for continued modest gains on the likelihood of a neutral-to-hawkish FOMC statement to day, which should result in a \"downward bias\" for gold and the entire precious metals complex in the short term.