News and Views: 14 August, 2008

Oil regained its position yesterday after inventories fell according to a US weekly inventory data

Indices:

European markets:

European stocks declined for the second time a row yesterday, on concern over health of banks, which on and off keep reporting losses along with the slowdown in earnings. Philippe Gijsels, a senior equity strategist at Fortis Global Markets in Brussels said: "Banks still have a way to go with write downs. The economic slowdown worldwide will impact banks' earnings.'' (source: bloomberg.com).

US retail sales numbers were released yesterday which were up to expectations. Heino Rulan, a strategist with FranfurFinanz, said: "We had retail sales that were in line with expectations, so not earth-shattering. But being in line with expectations is not good enough these days, so that was a further threat to equities. The markets were due for a correction because of falling crude and falling commodities but these are not good enough to lift markets because prices are still ... above levels seen last year." (source: reuters.com).

The German Dax tumbled 163 to 6,422, the French CAC gave up 115 points to 4,402. London's FTSE 100 fell 1.6 percent. (source: sharecast.com and reuters.com).

US markets:

Markets in US again plummeted down after retail sales results were not as expected, Deere & Co, the largest tractor maker fell 3.2 percent as material costs were high and earnings were low. Merrill Lynch too announced that the subprime mortgage problem may continue further and is not over yet. David Heupel, manager with Thrivent Financial in Minneapolis, told bloomberg radio,: "Your house isn't worth as much as it used to be, the unemployment rate is going up and you're paying more for gas than you've ever paid before. A lot of crosscurrents are hitting the consumer right now and particularly the discretionary money they have to spend.'' (source: bloomberg.com).

Merrill Lynch also downgraded the shares of Lehman Brothers, Goldman Sachs and Morgan Stanley, making recovery of financials very difficult. (source: ft.com). 

Peter Kenny, managing director at Knight Equity Markets in New Jersey, said: "The backdrop is quite dismal. Now that the tax rebate checks have been spent, the question is where the next infusion of cash into the economy is going to come from. Financials are lower based on what appears to be an announcement coming about a settlement on auction-rate securities, which is putting more negative pressure on that sector." (source: reuters.com).

Dow Jones ended the day down 109 at 11,532, the tech focused NASDAQ Composite dropped 1 to 2,428, while the S&P 500 was off 3 points at 1,285. (source: sharecast.com).

Asian markets:

Extension of losses was continued by Asian stocks for the fourth day, after ICBC, China's top lender was downgraded by Credit Suisse taking banks lower. Andrew To, sales director with Tai Fook Securities, said:"Chinese banks have held up well even as shares in most other sectors have come crashing down in recent weeks. If the banks shares fall, it will indicate the end of this round of sell-offs in Hong Kong and we can prepare for a strong rebound as soon as the China market stabilizes." (source: reuters.com).

Japanese shares also declined after Japan's global economic outlook showed it's GDP shrank. (source: ft.com).

The benchmark Nikkei 225 index closed 280 points lower at 13,023.  Hong Kong's Hang Seng closed down 347 points at 21,293. (source: sharecast.com).

Currencies:

After crude oil rose yesterday, dollar moved lower against the euro rekindling worries about slowing US economy. Firas Askari, head currency trader at BMO Capital in Toronto, said: " "Commodities are tight today, that adversely affects the Japanese economy. I would expect to see a bit of yen sell-off. It's not good for the U.S. dollar either against everything else except the yen." (source: reuters.com).

Sterling pound edged lower against the dollar and the euro after the Bank of England gave a very bleak economic assessment. (source: ft.com).

In afternoon trading in New York, the euro traded 0.2 percent higher at $1.4935. Against the Japanese yen, the euro rose 0.5 percent to 163.68 yen. The dollar was up 0.2 percent against the yen at 109.41 yen. (source: reuters.com).

Commodities:

Oil:

Oil regained its position yesterday after inventories fell according to a US weekly inventory data due to shut down of refinery units causing fall in imports. (source: ft.com).

Michael Lynch, president of Strategic Energy & Economic Research in Massachusetts, said: "Refiners are cutting runs and imports plunged because demand is so weak. Refiners weren't making money so it made sense to shut units.'' (source: bloomberg.com).

Crude oil for September delivery rose as much as 53 cents, or 0.5 percent, to $116.53 a barrel at 8:44 a.m. Sydney time on the New York Mercantile Exchange. (source: boomberg.com).

Gold: 

Earlier speculation was ripe that gold had a 12 percent decline since the end of July, this data was said to be exaggerated, this took gold higher from its lowest level. Stephen Platt, a commodity analyst at Archer Financial Services Inc in Chicago said: "The market has had an extended decline and it's certainly due for a rally. You're starting to see physical demand evolve. There's an easing up on the selling pressure around the $800 level.'' (source: bloomberg.com).

Gold futures for December delivery rose $16.90, or 2.1 percent, $831.50 an ounce on the Comex division of the New York Mercantile Exchange. (source: bloomberg.com).

Bonds:  

Yields move inversely to bond prices

US Treasuries:

Usually when stocks fall, investors flock towards bonds they being safe haven for investment during volatile times. But yesterday, bonds fell after some analysts said that inflation concerns have boosted crude oil. Kim Rupert, managing director of global fixed income analysis with Action Economics LLC in San Francisco, said: "The foremost factor might be inflation concerns. We saw a pretty big bounce in the CRB (commodities index) today. Oil prices are higher. We have seen some ominous inflation reports from around the world." (source: reuters.com).

The 30-year Treasury yield rose 4.58 percent. (source: reuters.com). 

European Bonds:

Unlike US treasuries, bonds in Europe rose after factory production reports showed stagnation in June, reducing chances policy makers may lift interest rates. Stephan Rieke, an economist and bond analyst at BHF-Bank AG in Frankfurt said: "As long as the data flow continues to confirm the economic slowdown, there'll be downward pressure on bond yields. There's been a shift in sentiment and that's helped the bond market.'' (source: bloomberg.com).

The yield on the German bund, Europe's benchmark government security, fell 3 basis points to 4.20 percent by 4 p.m. in London. (source: bloomberg.com).

Economic Calendar - 14 August 2008:

06:00am  Consumer Price Index (YoY) (Jul) - Germany: 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 0.3%. (High volatility expected).

12:30pm Consumer Price Index (YoY)(Jul) - United States : The Consumer Price Index released by the US Department of Labor is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or Bearish). Previous rate was 5.0%. (High volatility expected).

12:30pm Consumer Price Index Ex Food & Energy (MoM)(Jul) - United States : The Consumer Price Index Ex Food & Energy released by the US Department of Labor is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. Those volatile products such as food and energy are excluded in order to capture an accurate calculation. A high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or Bearish). Previous rate was 0.3%. (High volatility expected).

12:30pm Consumer Price Index Ex Food & Energy (YoY)(Jul) - United States : The Consumer Price Index Ex Food & Energy released by the US Department of Labor is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. Those volatile products such as food and energy are excluded in order to capture an accurate calculation. A high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or Bearish). Previous rate was 2.4%. (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.)