News and Views: 1 August, 2008

GDP released by the Commerce Department grew at an annual rate of 1.9% in the second quarter, very less than the expected rate of 2.4%

Indices:

European markets:

Last day of July, saw European markets fall as reports showed US economy had a slow pace. Along with it Unilever, world's second largest consumer products company's profits slipped 20 percent. Tony Dolphin, director of strategy and economics at Henderson Global Investors in London said:"This is the latest in a string of bad news for economic growth. This has got to be bad for earnings and for equity markets.'' (source: bloomberg.com).

But some analysts like Stefan de Schutter, an asset manager at Alpha Trading in Frankfurt, think "This week is better than last week in terms of earnings and it's generally not as bad as people had feared." He added "Banks are sentiment shares. They saw the biggest losses when the sentiment was bad and therefore also have the biggest potential for recovery." (source: reuters.com). 

It can be seen by the day's close of the various markets, yesterday was a mixed day for European markets. The German Dax rose 19 points to 6479 points while the French slipped 8 points to 4392. The UK's FTSE 100 slipped 0.2 percent. (source: sharecast.com and bloomberg.com).

US markets:

In US the situation was very different from Europe. Here stocks fell over poor earnings result from Exxon Mobil, also reviving fears of a US recession due to disappointing economic data. Alan Lancz, president of Alan B Lancz & Associates Inc, based in Ohio, said:"Investors are on edge. This morning's economic numbers were disappointing. Unemployment is a concern." (source: reuters.com).

The economic data, GDP to be precise, released by the Commerce Department grew at an annual rate of 1.9% in the second quarter very less than the expected rate of 2.4%. (source: sharecast.com). Quincy Krosby, a chief investment strategist at Hartford, Connecticut, said:"The data put the market on notice that the economy is slowing. It's not equity friendly.'' (source: bloomberg.com).

Asian markets:

Shares in Asia went slightly higher , after China's largest shipping company China COSCO, rose on a JP Morgan valuation upgrade, giving the firm a chance to get included in the Hang Seng Index. Conita Hung, head of equity markets at Delta Asia Financial Group said:"With all the volatility in recent sessions, investors are not confident enough that the rally in the U.S. markets will continue. Also blue chip earnings season starts next week with HSBC, causing investors to be more cautious." (source: reuters.com).

The Nikkei 225 index settled 9 points higher at 13,376. Hong Kong's Hang Seng closed up 40 points at 22,731. (source: sharecast.com).

Currencies:

With decline in US stocks, US was in for another bad news when dollar slipped as US weekly jobless claims data rose unexpectedly along with below forecast GDP. Stephen Malyon, senior currency strategist at Scotia Capital in Toronto, said: "Weekly claims are probably the most important number when it comes to a forward-looking assessment of the US economic prospects and what we are going to see the Fed do." (source: reuters.com). The euro last traded at $1.559, up 0.1 percent on the day. The dollar cut losses against the yen to trade at 108.10 yen after falling as low as 107.58 ye. (source: reuters.com).

Commodities:

Oil:

Oil continued to decline yesterday as weak US economic data fuelled concern of consumers tightening their energy consumption in other words, there was fear around the market that demand for oil may fall. (source: sharecast.com).

Oil for September delivery settled $2.69 lower at $124.08 a barrel on the New York Mercantile Exchange. (source: sharecast.com).

Gold: 

On Thursday, investors saw gold rise as dollar weakened, but later gains drained away along with oil's decline. Traders according to analysts are eagerly waiting for the US non farm payroll data due on Friday to see where the trade gets directed. Jim Steel, HSBC analyst said:"The employment numbers are always the biggest piece of data out. That is going to be a determining factor tomorrow." (source: reuters.com).

Among precious metals, gold for August rallied $10.40 to close at $922.70 an ounce on the New York Mercantile Exchange. (source: sharecast.com).

Bonds:  

Yields move inversely to bond prices

US Treasuries:

Treasuries rose after US stocks had a disappointing day after GDP did not grow as expected and Jobs claims also rose in July, giving back importance to the bonds over stocks. Steve Point, lead portfolio manager at Glenmede Investment Management in Philadelphia said:"Bonds are picking up here with the stock market leaking lower." (source: reuters.com).

The benchmark 10-year Treasury note's price, which moves inversely to its yield, was up 20/32 for a yield of 3.97 percent. (source:reuters.com).

European Bonds:

Bonds in Europe rose after a government report revealed more than expected fall in retail sales in June in German. Jan Loeys, head of market strategy in London at JPMorgan Chase & Co. wrote in a note to clients, : "World bond markets have rebounded strongly, a steady deterioration of economic activity.'' (source: bloomberg.com).

The yield on the 10-year German bund, Europe's benchmark government security, slid 26 basis points in the period to 4.34 percent. (source: bloomberg.com).

Economic Calendar - 1 August 2008:

12:30pm  Average Hourly Earnings (MoM) (Jul) - United States: The Average Hourly Earning released by the Bureau of Labor Statistics of the US Department of Labor is a significant indicator of labor cost inflation and of the tightness of labor markets. The Federal Reserve Board pays close attention to when setting interest rates. A high reading is also positive for the USD, while a low reading is negative. Previous rate was 0.6%. (High volatility expected).

12:30pm Average Weekly Hours (Jul) - United States : The Average Weekly Hours released by the Bureau of Labor Statistics of the US Department of Labor is an indicator of labor cost inflation and of the tightness of labor markets. The Federal Reserve Board pays close attention to when setting interest rates. Excessive volatility is expected. A high reading is positive (or bullish) for the USD, while a low reading is negative. Previous rate was 33.7. (High volatility expected).

12:30pm Non Farm Payrolls (Jul) - United States : The most important piece of data contained in the employment report generally and the establishment survey specifically is the non-farm payrolls released by the Bureau of Labor Statistics of the US Department of Labor. The nonfarm payrolls measure the number of people on the payrolls of all non-agricultural businesses. The monthly changes in payrolls can be excessively volatile. 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 -62K. (High volatility expected).

12:30pm Unemployment Rate (Jul) - United States : The Unemployment Rate released by the Bureau of Labor Statistics of the US Department of Labor is the number of unemployed workers divided by the total civilian labor force. If the rate is up, it indicates a lack of expansion within the US economy. Therefore, a decrease of the figure is seen as positive (or bullish) for the USD, while an increase is seen as negative (or bearish). Previous rate was 5.5%. (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.)