News and Views: 30 July, 2008

Unlike their US and European counterparts, Asian markets took a beating over Merrill Lynch's $5.7billion of write downs

Indices:

European markets:

After Monday's disastrous day, European stocks moved up on Tuesday, after a report showed US consumer confidence unexpectedly rose this month. Andreas Nigg, head of international equities Vontobel Asset Management in Zurich said: "The US data is what you need in these uncertain times. Not to mention the fact oil is heading south.'' (source: bloomberg.com).

Despite very good US consumer data, financial sector was still looking for some gains, but banks continued to fall, after Merrill Lynch posted more writedowns. Bernard McAlinden, market strategist at NCB Stockbrokers in Dublin said:"Many European banks are holding structured credit assets similar to those of Merrill Lynch. The write-downs at Merrill Lynch are therefore potentially useful reference points for European banks' marks." (source: reuters.com).

The consumer confidence report was released by the New York based Conference Board. The index according to the board rose to 51.9 in July from 51 in June. Analysts has actually estimated a fall to 50. (source: sharecast.com).

Dax gained 0.8 per cent to 6,398.80, the CAC 40 lost 0.1 per cent to 4,276.90 and FTSE 100 was up 0.1 per cent at 5,319.2. (source: ft.com).

US markets:

Write downs reported by Merrill Lynch did not deter investors from taking US stocks higher and oil's decline. Eric Green, director of research and senior money manager at Penn Capital Management in Hew Jersey said:"Oil is clearly pushing the market higher. You had intense fear that things were bad and getting worse. The direction of oil changing was a significant catalyst for this market.'' (source: bloomberg.com).

US markets sudden boost is credited by many analysts as a oil's declining push to take markets higher. Tim Ghirskey, chief investment officer at Solaris Asset Management in New York said: "There's always the hope that this might be the last big financial blowup. Some people think we may be getting toward the end in terms of large write-downs." (source: reuters.com).

Across the markets, the Dow closed up 266 points at 11,397 with the Nasdaq up 55 points to 2,319. The S&P 500 gained 28 points.  (source: sharecast.com).

Asian markets:

Unlike their US and European counterparts, Asian markets took a beating over Merrill Lynch's $5.7billion of write downs. (source: ft.com).  Howard Gorges,  vice chairman  with South China Brokerages said:" After the recent rally, investors seem to have used the bad news in the financial markets as an excuse to lock in gains. While more write-downs or banks going belly-up are certainly not good news, it is not something the market is unfamiliar with." (source: reuters.com).

The Nikkei 225 index closed down 194 points at 13,159. The Hang Seng index closed down 429 points at 22,258. (source: sharecast.com).

Currencies:

Tuesday saw dollar rise against the euro, yen, pound and many other currencies after drop in oil prices and an unexpected rise in consumer confidence. Michael Woolfolk, senior currency strategist at the Bank of New York in New York, said: "The dollar has been picking up steam since 10 a.m. this morning from the combination of a rally in stocks, higher consumer confidence and dive in oil prices. Euro/dollar has been breaking through some interesting levels, and if we see oil prices trading below $120 a barrel, we might see another push through $1.5550 soon." (source: reuters.com).

By midday in New York, the dollar rose 0.8 per cent to $1.5612 against the euro, gained 0.6 per cent to Y108.12 against the yen. The pound fell 0.7 per cent against the dollar to $1.9812. (source: ft.com).

Commodities:

Oil:

A slowing demand for crude oil and other commodities globally took oil lower yesterday. Dollar's strong stand also did not do much for oil. (source: ft.com). Tom Bentz, a broker at BNP Paribas in New York said: "A stronger dollar translates into weaker crude. The market is still kind of in this downward trend here in the short term and is having troubling turning back up.'' (source: bloomberg.com).

Traders are also looking forward for Wednesday's oil inventory data from the US Department of Energy. Peter Fertig, an analyst with Dresdner Kleinwort said:"The consensus is looking for another drop of crude oil inventories, which might provide some support for crude oil and thus also for gold." (source: reuters.com).

Crude oil for September delivery lost 30 cents to $121.89 a barrel at 8:44 a.m. Sydney time on the New York Mercantile Exchange. (source: bloomberg.com).

Gold: 

Dollar's climb, Oil's fall, along with US stocks rise left gold lower by 1 percent. Michael Kempinski a senior trader at Commerzbank said:"Gold's decline was "pretty much forex related, and oil is coming down. We need to see some stronger commodities in general, and a stronger euro, to push gold higher again." (source: reuters.com).

Another analyst, Adam Hewison, president of MarketClubs.com in Maryland, said:"When crude oil goes down, gold also goes down with the stock market going up. Everyone is watching that correlation." (source: reuters.com).

Gold was at 918.80/920.30 by New York's last quote at 2:15 p.m. EDT. (source: reuters.com).

Bonds:  

Yields move inversely to bond prices

US Treasuries:

Treasuries fell after a good US consumer confidence report doubled with oil's fall and ris ein stocks, eroding Bonds safe haven appeal. Ted Ake, executive director and head of bond trading with Mizuho Securities USA in New York said:"The current thinking is that if oil goes down, the stock market will go up, and therefore Treasuries will go down. All three markets -- oil, stocks and Treasuries -- have been linked for the past few months, although it is not a perfect correlation." (source: reuters.com).

The price of the benchmark 10-year Treasury note fell 15/32 for a yield of 4.07 percent, (source: reuters.com).

European Bonds:

Bonds in Europe were a different lot from the US Treasuries. Some investors preferred to stay with government bonds while others went along with stocks. Write downs by Merrill Lynch and an unexpected first quarter loss reported by Japanese brokerage, Nomura Holdings Inc made investors aware that the credit crisis is far from over. Sean Meloney, a fixed income strategist in London at Nomura International Plc said: "The bond market is being pulled in two directions. We're expecting strong inflation numbers out of Germany but longer-term the outlook for growth will come back into focus.'' (source: bloomberg.com).

The yield on the 10-year bund fell 6 basis points to 4.47 percent as of 5:14 p.m. in London. (source: bloomberg.com).

Economic Calendar - 30 July 2008:

12:15pm  ADP Employment Change (Jun) - United States: The Employment Change released by the Automatic Data Processing, Inc is a measure of the change in the number of employed people in the US Generally speaking, a rise in this indicator has positive implications for consumer spending which stimulates economic growth. Therefore, 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 -79K. (Medium volatility expected).

12:30pm Industrial Product Price (MoM) (Jul) - Canada : The Industrial Product Price released by the Statistics Canada measure price changes for major commodities sold by Canadian manufactures. Changes in the IPP are widely followed as an indicator of commodity inflation. A high reading is seen as positive (or bullish) for the CAD, whereas a low reading is seen as negative (or bearish). Previous rate was 0.6%. (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.)