News and Views: 13 August, 2008

Asian markets were no different from their US and European counterparts in shedding gains yesterday

Indices:

European markets:

Investors and traders had a disappointing day on Tuesday when European stocks saw a stumbling block in rising stocks. Mining companies suffered maximum losses when metal prices tumbled down further. According to a fund manager in Paris, working at Neuflize OBC Asset Management, Emmanuel Soupre, "For the moment, the best performance of basic resources shares is behind us. The idea of an economic slowdown is weighing on raw materials prices.'' Another analyst with Richelieu Finance, Clemence Bounaix in Paris said: "We're waiting for more visibility on the evolution of the economy. There are worries about inflation and consumer spending.'' The comments by Soupre and Bounaix echoed the market sentiments of traders globally. (source: bloomberg.com).

Further write downs from JPMorgan, US's third largest bank further deteriorated the situation by taking financial stocks lower. A strategist with Commerzbank, Andreas Huerkamp in Franfurt, said:" The market is doubting whether the US rate cuts are having an effect.  The US had a steep yield curve since January, which usually has a positive effect on the equity markets, but now seven months have passed and we are still experiencing negative news in the financial sector." (source: reuters.com).

The UK's FTSE 100 slipped 0.1 percent. France's CAC 40 and Germany's DAX lost 0.4 percent. (source: bloomberg.com).

US markets:

Credit losses in the financial sector is continuing to be a major problem for the US economy. Yet again JPMorgan posted write downs yesterday, adding to a whooping $500billion in total subprime mortgage costs worldwide. Chief Investment Officer at Dana Investment Advisors in Wisconsin, Joseph Veranth told bloomberg radio,: "It's going to be like a long, slow car crash to work through the housing situation. We're still in the middle of it.'' (source: bloomberg.com).

Adding to the mortgage crisis, Dallas Federal Reserve Bank's President Richard Fisher said, the US economy has a long way to go with prolonged slow growth and the situation can become worse later this year. Paul Notle, director of investments at Hinsdale Associates in Illinois, commented very specifically to yesterday's decline as,: "Today is just a bad day in financials -- JPMorgan being down that much is really creating the drag here. Even the lower oil price is not helping the market today." (source: reuters.com).

The Dow Jones lost 139 points to finish the day at 11,642, the tech laden Nasdaq Composite fell 9 to 2,430, while the S&P 500 ended 15 lower at 1,289. (source: sharecast.com).

Asian markets:

Asian markets were no different from their US and European counterparts in shedding gains yesterday. Apart from the write downs news of JPMorgan, concerns over slow economic growth in Asia has mounted fears of eroding gains from companies profiting from oil's decline. (source: ft.com).

China Mobile was a huge disappointment when it posted heavy losses. The company's earnings growth amid slowing economy in China and uncertainties in regulations has been a major concern for investors. (source: reuters.com).

Nikkei also declined over China Mobile's earnings growth. Steel makers like Nippon Steel and Sumitomo Metal Industries bore losses after being hit by the recent commodities sell-off. (source: sharecast.com).

The benchmark Nikkei 225 closed 127 points lower at 13,303. Hong Kong's Hang Seng closed down 218 points at 21,640. (source: sharecast.com).

Currencies:

After a steady rise in the past week, dollar declined against the euro  and the yen yesterday as investors locked in profits by selling dollar to save their gains so far taking in account the key economic data due to be released this week. Ronald Simpson, managing director of global currency analysis at Action Economics in Florida,  echoed the same sentiments, :  "The dollar has been moving in one direction higher for the last week or so. The market is just taking some dollars off the table here." Simpson added: "Going forward, the direction will be determined by some of the U.S. data coming out later in the week, and also to a degree by what happens with commodity prices." (source: reuters.com).

The Sterling seemed to be the worst hit amongst currencies, when it dipped to its lowest in 21 months against the dollar, after a report released figures showed fall in UK house prices reminding everyone that the economy is slowing. This sentiment was aptly said by Michael Metcalfe, head of macro strategy at State Street Global Markets in London,: "The pound is still being swept along by a broader dollar move. There is also an assumption the Bank of England will have to capitulate and focus on growth rather than inflation.'' (source: bloomberg.com).

The pound fell as much as 0.7 percent to $1.8969. The euro edged up 0.1 percent to trade at $1.4923. The dollar was 0.7 percent lower at 109.33 yen. (source: bloomberg.com and reuters.com).

Commodities:

Oil:

Again on Tuesday, oil plummeted to a 14 week low on speculation that dollar may strengthen against the euro, taking away oil's importance of being used as an inflation hedge. Peter Beutel, president of New Canaan at Cameron Hanover Inc in Connecticut said:"The oil market is still catching up with the rise of the dollar over the last few days. The oil market is still catching up with the rise of the dollar over the last few days." (source: bloomberg.com).

The September futures contract was off 75 cents at $114.45 a barrel in New York. (source: sharecast.com).

Gold: 

Yesterday, gold steadied a little after dollar declined against the euro and the yen, giving the precious metal a chance to stabilize itself from the previous session's losses. (source: reuters.com).

Gold's sentiment was echoed appropriately by Frank Lesh, a trader at FuturePath Trading LLC: " The dollar still looks pretty good, but its rate of ascent has seemed to slow. When the dollar quits going up, gold quits going down. It's going to take time to repair this. Don't look for a quick turnaround.'' (source: bloomberg.com).

Gold dropped to $802.90 a troy ounce, its weakest level since late December. (source: ft.com).

Bonds:  

Yields move inversely to bond prices

US Treasuries:

Triggered by write downs announced by JPMorgan Chase and huge losses in the stock market due to heavy sell-off yesterday, investors returned back to safe haven government bonds. Brain Edmonds, head of rates trading at Cantor Fitzgerald in New York said: "Today we saw a safe-haven trade into Treasuries due to concerns about financials."  (source:  reuters.com).

The US benchmark 10-year Treasury yield fell to 3.92 percent. (source: reuters.com).

European Bonds:

Losses faced in the stock markets prompted investors to look towards government bonds as safe investments yesterday. Speculation was also high that policy makers are not focusing on inflation but rather on slowing economy causing more uncertainty in the market. Cyril Beuzit, head of interest rate strategy at BNP Paribas, in London, said: "There is less concern about the inflation outlook. Equities were again a bit weaker.'' He added that investors are better off if they turn more neutral with the 10 year yielding less than 4.25 percent. (source: bloomberg.com).

The yield on the German bund, Europe's benchmark government security, fell as much as 6 basis points to 4.21 percent. (source: bloomberg.com).

Economic Calendar - 13 August 2008:

09:30am  BoE Inflation Letter - United Kingdom: The Inflation letter released by the Bank of England gives a the detailed economic analysis and inflation projections. It can influence the BoE's Monetary Policy. A high reading is seen positive (bullish) for the GBP, whereas a low reading is seen as negative (bearish). It is worth noting that this tentative letter is only published when the CPI (YoY) is above 3.0%. (High volatility expected).

12:30am Retail Sales ex Autos (MoM)(Jul) - United States : The Retail Sales ex Autos released by the US Census Bureau is a monthly data that shows all goods sold by retailers based on a sampling of retail stores of different types and sizes except the automobile sector. The retail sales index is often taken as an indicator of consumer confidence. This report is the "advance" report, which can be revised fairly significantly after the final numbers are calculated. The positive economic growth anticipates bullish movements for the USD. Previous rate was 0.8%. (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.)