Compass Directions - Morning Report

How long can the Europhoria last? That will be the question on investors' minds this week as scrutiny of the latest European bailout package intensifies. Already there are calls for “swift implementation” of the plans by the likes of ECB President Trichet. In a letter to the G20, EC President Barroso wrote, “We will implement these measures rigorously and in a timely manner, and we are confident that they will contribute to the swift resolution of the crisis.” The markets now watch and wait. The EUR/USD has opened the Asian session down marginally to 1.4150.

Investors’ concerns are most apparent in the credit markets where Italy's cost of funding rose to a Euro-record high for three year debt in an October 28 bond sale. Perhaps market participants were somewhat concerned by PM Silvio Berlusconi's grandiose statement that only he could deliver and implement the country's austerity programme and that is why “there is no way for me to stand aside.” Legendary investor, George Soros, has criticised the new “Brussels deal” by saying that it was too little, too late and that the deal will last between 1 day and three months. He is concerned that the private sector will not honour the 50% haircut as it does not meet the criteria of a credit event that will lead to a payout to them under the terms of a credit default swap. He believes that banks will simply wait for an event that will trigger these credit default swaps first before taking any voluntary “haircuts”.

Equity markets in the US pared losses in the final minutes of trade with the S&P 500 closing up only 0.04% to 1,285.09. Better than ex-pected consumer sentiment figures supported the market and saw the index close up for the fourth consecutive week to record its best monthly rally since 1974. Hewlett Packard rallied 3.5% while the Dupont rose 1.3% as four stocks fell for every three that rose on US exchanges. Earlier in Europe, the DAX closed marginally higher by 0.13% to 6,346.16 while the FTSE closed down by 0.2% to 5,702.24.

Commodity prices eased from their lofty heights after the Euro summit inspired blast-off. Crude oil has eased marginally by 0.7% to $93.30 as traders took profit over a fall in Japanese industrial output. Japan is the third largest consumer of oil after the US and China. Precious metals continue to show good price consolidation with gold trading at $1,746 and silver at $35.30. Soft commodities eased while copper managed a modest gain of 0.4%. The CRB index is down 1.2 points to 323.07. Today, we have the release of the Japanese Manu-facturing PMI and Australian Private Sector Credit.