US rally proves short-lived, Asian markets may trade lower

<p>Asian stocks are set to open flat today after lower leads from the U.S. and Europe where bond yields remain elevated. Germany’s Chancellor Angela Merkel […]</p>

Asian stocks are set to open flat today after lower leads from the U.S. and Europe where bond yields remain elevated. Germany’s Chancellor Angela Merkel continues to take a hard line approach towards the debt crisis, dismissing calls for an expanded ECB role, instead preferring tighter budget limits as the only long term solution.

While Merkel continues to take on this approach, ECB President Mario Draghi signaled that the ECB could do more to fight the crisis in return for fiscal union. Bond yields tell the true story and reflect what investors are thinking. The 10-year bond yields for France, Italy and Spain last traded at 3.08%, 6.61% and 5.66% respectively, still lower than recent highs but above comfort levels.

The EUR/USD continues to find resistance at the 1.35 level, last trading at around 1.3462.

In regional economic news, Goldman Sachs has joined HSBC in forecasting rate cuts in China for 2012, contrary to market consensus which assumes inflation is too high to accommodate cuts.

The forecast come as Australian banks see their credit ratings downgraded by a notch by S&P but all big four banks remain AA rated. The move is unlikely to see any panic among Australian investors but there will be questions by those offshore as to the sustainability of Australian bank valuations, now among the highest in the world.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.