News and Views: 26 August, 2008

Markets in US struggled to form a base yesterday, when markets were let down by financial shares

Indices:

European markets:

European shares had a bad start at the beginning of the week. There were Merger and Acquisition talks in Germany, with Allianz, an insurance company rose up slightly amid rumours that it was in the final stages to sell its subsidiary Dresdner Bank, Commerzbank being the possible buyer. In the airline industry there were talks of a three way merger between Condor, operated by Arcandor, subsidiary of Thomas Cook, Deutsche Lufthansa's Eurowings and TUI's TUIfly. (source: ft.com).

In Frankfurt the Xetra Dax edged 0.7 per cent lower to 6,296.95 and in Paris the CAC 40 lost 1 per cent to 4,355.87. (source: ft.com).

US markets:

Markets in US struggled to form a base yesterday, when markets were let down by financial shares. The American International Group Inc (AIG) tumbled after Credit Suisse Group said the insurer may lose $2.41 billion this quarter on write downs. Peter Sorrentino, senior portfolio manager at Huntington Asset Advisors said to bloomberg television: "The market's going to struggle until we get a clear indication that we know what the bottom is in the financials, and that may be a while." (source: bloomberg.com).

The S&P 500 dropped 25.36, or 2 percent, to 1,266.84. The Dow Jones Industrial Average slid 241.81, or 2.1 percent, to 11,386.25. The Nasdaq Composite Index decreased 49.12 to 2,365.59. (source: bloomberg.com).

Asian markets:

Wall Street losses spread to the Asian markets too on Monday with financials like Mitsubishi UFJ Financial weighed heavily on the Nikkei. There was lot of down grading of companies happening, where HSBC cut its rating on lender Bank of Yokohama and broker Fukuoka Financial, taking their respective shares into red. (source: sharecast.com).

The benchmark Nikkei 225 index closed down 99 points at 12,778. The Hang Seng index closed down 48 points at 21,056. (source: sharecast.com).

Currencies:

Dollar continued its decline on Monday against the yen as financial shares in US dragged stock market lower due to credit concerns, forcing investors to reduce their risk. The existing home sales result was disappointing as expected. David Gilmore, partner, Foreign Exchange Analytics in Connecticut, said: "I'm not going to read a lot into one-month uptick in existing-home sales. I think the trend is still downward in housing. There's always the knee-jerk reaction." (source: reuters.com).

But dollar rose higher against the euro, as London market was closed and there were very few trades from the European region. Some analysts think that the dollar has potential to rise as investors are now more concerned about profits at the risk of short-term losses. The Bank of New York Mellon's iFlow indicator showed: "the appetite for US dollars on the part of real-money investors remains in place, a continuation of the trend we have been witnessing since last month”. (source: ft.com).

The euro fell 0.2 per cent against the dollar to $1.4750, while sterling was flat at $1.8512. The yen rallied 0.6 per cent against the dollar to Y109.35. (source: ft.com).

Commodities:

Oil:

Oil prices saw a very volatile day yesterday, with fluctuations in the currency market. The commodity market was chaotic after news about a possible hurricane from US may hit oil installations in the Gulf of Mexico. (source: sharecast.com).

US light crude oil for October delivery settled up 52 cents at $115.11 per barrel on the New York Mercantile Exchange. (source: sharecast.com).

Gold: 

Gold ended lower with dollar's rise against the euro prompted investors to take profits. Ahead of the festive season in India, gold just managed to be above $800 an ounce with demand rising from jewelers. Carlos Sanchez, precious metals analyst, CPM Group in New York, said: "I think gold is finding its base here. It's mostly technical support holding prices above $820. Any dips below $820 are seen as a buying opportunity." (source: reuters.com).

Gold for December delivery fell $7.80 to close at $825.70 an ounce. (source: sharecast.com).

Bonds:  

Yields move inversely to bond prices

US Treasuries:

A Dip in US stocks saw bonds rise to take back their safe haven position yesterday. A weak financial sector due to ongoing credit concern made investors worry whether credit problems will fade away or turn more nasty. Georges Yared, chief investment officer at Gamechanger Research in Minneapolis said: "We are getting more of the continued (safety) flight into the Treasury market." (source: reuters.com).

Benchmark 10-year Treasury's yield fell to 3.77 percent. (source: reuters.com).

European Bonds:

Bonds in Europe also rose after stocks saw a decline with rising concern among investors about the credit market losses and slowing economies. Wlison Chin, a fixed income strategist in Amsterdam at ING Bank NV, said: "The flight-to-quality trades are still there. The ECB won't hike rates any further, that's for sure.'' (source: bloomberg.com).

The yield on the 10-year German bund, Europe's benchmark government security, slipped 10 basis points to 4.11 percent. (source: bloomberg.com).

Economic Calendar - 26 August 2008:

06:00am  Gross Domestic Product (QoQ) (2Q) - : The Gross Domestic Product released by the Statistisches Bundesamt Deutschland is a measure of the total value of all goods and services produced by Germany. The GDP is considered as a broad measure of the German economic activity and health. A high reading or a better than expected number has a positive effect on the EUR, while a falling trend is seen as negative (or bearish). Previous rate was 1.5%. (High volatility expected).

06:00am  Gross Domestic Product (YoY) (2Q) - : The Gross Domestic Product released by the Statistisches Bundesamt Deutschland is a measure of the total value of all goods and services produced by Germany. The GDP is considered as a broad measure of the German economic activity and health. A high reading or a better than expected number has a positive effect on the EUR, while a falling trend is seen as negative (or bearish). Previous rate was 2.6%. (High volatility expected).

18:00pm  FOMC Minutes - United States: FOMC stands for The Federal Open Market Committee that organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy. (High volatility expected).

Recent Market Action:

Sources include: Bloomberg.com , Reuters.com, Fxstreet.com and FT.com

(Any opinions expressed in these updates do not reflect the views of the company, and as such should not be taken as trading advice.)