News and Views: 27 August, 2008

Like it's European counterparts, US markets rebounded yesterday amidst good consumer confidence report in the US

Indices:

European markets:

Rise in Consumer Confidence and home sales in US overshadowed concerns that UK and German economies may be slowing down, boosted European markets yesterday. Peter Braendle, a fund manager at Swisscanto Asset Management AG in Zurich, said: "The better-than-expected data from the US helps to compensate the bad news we saw today in Germany and the UK.'' (source: bloomberg.com).

Heinz-Gerd Sonnenschein, an equity strategist at Postbank in Germany, said: "The markets will trade in a nervous zig-zag for the next few weeks." Nokia, mobile phone maker also had a hand in the markets rise after it released two new high end mobile phones in the market. Steubing, a brokerage in Germany commented in a note on the Ifo data: "The German economy will face a sudden and sharp downturn in the second half of this year leading to a fully-fledged recession. Corporate earnings are going to fall this and next year. We are underweight equities as we are convinced that next year's contraction isn't priced in." Citigroup added that the Ifo numbers suggested a "a further fall in euro area industrial confidence." (source: reuters.com).

Across the markets, the German DAX rose 43 points to 6340 with the French CAC up 12 points to 4368. Britain's commodity-heavy FTSE 100 was down 0.6 percent. (source: sharecast.com and reuters.com).

US markets:

Like it's European counterparts, US markets rebounded yesterday amidst good consumer confidence report in the US. Higher oil prices helped in lifting energy shares. In a twist analysts said that Fannie Mae and Freddie Mac have sufficient capital to last this year. Julie Van Cleave, manager at Deutsche Asset Management in Milwaukee, said; "We're still very favorable towards energy. The earnings estimates are still very reasonable. The market's not expecting a lot out of energy companies, so we find that interesting.'' (source: bloomberg.com).

Bernarnd McSherry, senior vice president of strategic initiatives at Cuttone & Company wasn't enthusiastic enough about the recent market activity, he added: "The clouds occasionally lift and investors decide that everything is going to work out for the economy." (source: ft.com).

The Dow Jones industrial average was up 26.62 points, or 0.23 percent, at 11,412.87. The Standard & Poor's 500 Index was up 4.66 points, or 0.37 percent, at 1,271.50. The Nasdaq Composite Index was down 3.62 points, or 0.15 percent, at 2,361.97. (source: reuters.com).

Asian markets:

Unlike European and US markets, Asian markets declined yesterday after a weak day for financials, over investor's fears about more credit market losses may increase. Sean Fenton, manager at Tribeca Investment Partners in Sydney said: "There's been an impairment of capital in the global banking system. It's the continuance of concerns not just over mortgage losses, but the process of credit destruction that has been set off all around the world.'' (source: bloomberg.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:

Euro dominated in news yesterday for dipping to a 6 year low against the dollar after a government report showed slowdown in economy and a dip in German consumer confidence survey. (source: ft.com).

Kevin Chau, a currency strategist at IDEAglobal in New York, said: "The dollar is higher versus the euro because euro zone data confirms weakness coming out of Europe and an overall global slowdown. The U.S. economy is still fairly weak but the rest of the world is catching up with it." (source: reuters.com).

Another analyst, Masanobu Ishikawa, general manager of foreign exchange at Tokyp Forex & Ueda Harlow Ltd, said: "The euro is mired in a mid-term downtrend. Slowing inflation is yet another reason why we can't expect the ECB to raise rates. Traders will continue to push the euro lower.'' (source: bloomberg.com).

In late afternoon trading, the euro was down 0.7 percent at $1.4642. The euro traded at $1.4645 at 8:51 a.m. in Tokyo. The pound fell a more than two-year low against the dollar, falling as low as $1.8331. The dollar was also up 0.3 percent versus the yen at 109.61. (source: reuters.com).

Commodities:

Oil:

Oil rose on Tuesday amid concerns that supply may be disrupted due to the hurricane Gustav which may hit and affect the oil installations in the Gulf of Mexico. (source: ft.com).  Rick Mueller, director of oil markets at Energy Security Analysis Inc in Massachusetts, said: "Gustav has the potential to be a major hurricane. At this time of year hurricanes become a major concern.'' Another analyst, Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd, in New York, said: "Prices surged because Gustav appears to be strengthening as it moves toward the Gulf. The news from Georgia is also helping send prices higher. Tension is ratcheting up instead of cooling down.'' (source: bloomberg.com).

Crude oil for October delivery fell 31 cents to $115.96 a barrel at 8:42 a.m. Sydney time on the New York Mercantile Exchange. (source: bloomberg.com).

Gold: 

Despite a higher dollar, gold was lifted by higher oil prices reviving the importance of gold as a hedge against inflation. Marty McNeill, a trader at R.F. Lafferty Inc in New York said: "Oil is the key to the turnaround in gold. Inflation is there. It's just a matter of people focusing on it.''  A metals strategist at UBS AG in London, Jon Reade, said: "Over the past three trading days, the dollar has regained pretty much all the ground that it lost over the preceding week. But gold has held above $800 despite this strength, supported by extremely strong demand for physical gold. Gold is positioned for a sharp move higher, although for this to happen, the dollar and probably crude will have to cooperate.'' (source: bloomberg.com).

Gold futures for December delivery rose $2.40, or 0.3 percent, to $828.10 an ounce on the Comex division of the New York Mercantile Exchange. (source: bloomberg.com).

Bonds:  

Yields move inversely to bond prices

US Treasuries:

US Treasury debt prices remained neutral, after the stock market stabilized keeping the benchmark yields lower. Sheila Bair, chairman of the Federal Deposit Insurance Corp, said: "more banks are expected to be added to the agency's 'problem list', suggesting the year-long credit market crunch is still rolling along." Yesterday's release of minutes by the Federal Reserve suggested: "The Fed is on hold and the minutes verify that. That's ultimately good news for equities and bad for bonds. We may not see it today, but that's the message they've been sending in the past month or so," as said by Kurt  Karl, chief US economist at Swiss Re in New York. (source: reuters.com).

In late trading, ten-year Treasuries yield was at 3.78 percent, unchanged from Monday. (source: reuters.com).

European Bonds:

Despite rise in equity stocks, bonds also rallied ahead after a survey showed rise in German Consumer Confidence, giving hope to many that the Central Bank may lower interest rates. Christopher Rieger, a fixed income strategist at Dresdner Kleinwort in Frankfurt said in a Bloomberg Television intervew: "We don't see where a swift recovery in economic activity might come from. We see further downside in coming months. The bigger picture is conducive toward more gains in bond markets.'' (source: bloomberg.com).

The yield on the 10-year German bund, Europe's benchmark government security, slipped 1 basis point to 4.11 percent. (source: bloomberg.com).

Economic Calendar - 27 August 2008:

03:00am  Business Confidence - : The Business Confidence released by the National Bank of New Zealand shows the business outlook in New Zealand. The Business Confidence allows analysis of economic situation in the short term. Increasing numbers indicates increases in business investment that lead to higher levels of output. Thus, a high reading is seen as positive (or bullish) for the NZD, while a low reading is seen as negative (or bearish). Previous rate was -43.2. (High volatility expected).

N/A  Consumer Price Index (MoM) (Aug) - : The Germany consumer price index released by the Statistiches Bundesamt Deutschland measures the average price change for all goods and services purchased by households for consumption purposes. CPI is the main indicator to measure inflation and changes in purchasing trends. A high reading is positive (or Bullish) for the EUR, while a low reading is negative (or bearish). Previous rate was 0.6%. (Medium volatility expected).

12:30pm  Durable Goods Orders (Jul) - United States: The Durable Goods Orders, released by the US Census Bureau, measures the cost of orders received by manufacturers for durable goods, which means goods planned to last for three years or more, such as motor vehicles and appliances. As those durable products often involve large investments they are sensitive to the US economic situation. The final figure shows the state of US production activity. A high reading is bullish for the USD. Previous rate was 0.8%.   (Medium 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.)