MEIR ON METALS: Markets exhibit growing doubts about European accords

Dec 12, 2011 | 11:23 AM |

Analyst Ed Meir looks at what is moving the metal markets on Monday. Copper and General Commentary: Despite the lack of unanimity that characterised the European agreement on December 9, markets held their ground or moved slightly higher – we suspect, because investors were relieved that something was agreed to, especially in light of German misgivings expressed earlier in the week about whether a deal would even be struck. However, although commodity markets scored impressive gains, key “response” markets did not impress us. European bonds ended the day mostly flat on December 9, while the euro did not do much of anything either, closing pretty much unchanged. The neutral showing from these two key markets is likely due to investors concluding that the most recent deal is multi-faceted and will therefore take time to implement, meaning that any sense of closure is probably months away. In addition, the accord did not have any “bold strokes” that could have turned sentiment around. Instead, what we saw was a rehash of a number of prior proposals, many of which have been either revised or placed on an accelerated timetable. As examples, the European permanent bailout fund, designed to replace the existing temporary fund (and which begs the question of why two funds are even needed in the first place) would start operations in 2012 instead of 2013, one year sooner than planned. However, at Germany’s insistence, the original €500 billion ($669 billion) cap on both funds would stay in place, meaning....

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