News and Views: 3 July, 2008

Treasuries fell after a government report showed payrolls declined in June, bringing back concern that the Federal Reserve may not raise interest rates

Indices:

European markets:

Wednesday was a pretty dry day for the European markets after coal prices dropped weighting heavily on mining stocks, but later markets stopped their losses after banks regained their glory. Thierry Lacraz, investment adviser at Pictet & Cie in Geneva said:"People continue to be nervous." He pointed to the current volatile trading environment, fears of further losses or capital increases across industry sectors and a soaring oil price. (source: reuters.com).

Across the markets, the German Dax fell 10 points to 6305 with the French CAC down 44 points to 4296. (source: ssharecast.com).

US markets: 

US shares were again lower yesterday as oil prices remained upward where employment levels headed lower. (source: sharecast.com).

Dow Jones fell by 166 points to 11,215. Nasdaq tumbled 53 to 2,251. S&P 500 shed 23 to 1,261. (source: sharecast.com)

Asian markets:

Markets in Asia again were lower on Wednesday with concern over rising oil prices and slowing global economy. Fears about more write downs in the financial sector also weighted on the markets. (source: sharecast.com).

The Nikkei 225 index closed down 176 points at 13,286. Hong Kong's Hang Seng index closed down 397 points at 21,704. (source: sahrecast.com).

Currencies:

Euro dropped lower against the dollar since the ECB is expected to raise interest rates with fears of rising inflation. Mitul Kotecha, head of FX strategy at Calyon said:  "There's some heavy flows going through the market which has pushed it to the new level but the backdrop is the imminent ECB rate hike and potentially hawkish statement and nervousness ahead of tomorrow's (U.S.) numbers." (source: reuters.com).

The euro was up 0.2 percent against the dollar at $1.5821. It was 0.3 percent firmer versus the Japanese currency at 168.04 yen. (source: reuters.com).

Commodities:

Oil:

Oil rose even higher yesterday and touched $144 a barrel. This happened after The Energy Information Administration announced that it is expecting a fall in oil supply in the coming years. (source: sharecast.com).

Light, sweet crude for August delivery settled $2.60 higher at $143.57 on the New York Mercantile Exchange. (source: sharecast.com).

Gold: 

Gold rose again yesterday with rising oil prices and a weak dollar. The dollar rose slightly after a report was released, hefty drop in monthly US employment levels. (source: sharecast.com).

August gold settled up $2 at $946.50 an ounce in New York. (source: sharecast.com).

Bonds:  

Yields move inversely to bond prices

US Treasuries:

Treasuries fell after a government report showed payrolls declined in June, bringing back concern that the Federal Reserve may not raise interest rates this year from rising inflation. Rishard Schlanger, a portfolio manager at Pioneer Investments in Boston said "The Fed's painted itself into a corner. They can't ease, they can't raise rates. The economy is muddling along at best. It's a very awkward situation. We've got stagflation-lite.'' (source: bloomberg.com).

The yield on the 10-year Treasury note rose 5 basis points to 4 percent at 9 a.m. in New York, according to BGCantor Market Data. (source: bloomberg.com).

European Bonds:

Government bonds in Europe stabilized after the ECB President Jean-Claude Trichet signaled that interest rate increase will be sufficient to combat inflation. (source: bloomberg.com).

The yield on the German 10-year bund, the region's benchmark government security, dropped 3 basis points to 4.61 percent. (source:bloomberg.com).

Economic Calendar - 3 July 2008:

11:45am ECB Interest Rate Decision (Jun28) – European Monetary Union:  ECB Interest Rate Decision is announced by the European Central Bank. If the ECB is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the EUR. Likewise, if the ECB has a dovish view on the European economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish. Previous rate was 4%. (High volatility expected). 

12:30pm Average Hourly Earnings (MoM)(Jun) – 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 0.3%. (High volatility expected).

12:30pm Non farm Payrolls (Jun) – 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 -49K. (High volatility expected).