News and Views: 5 August, 2008

Banks and miners took the European markets lower on Monday after poor results from HSBC dented financial stocks and further decline in metal prices took mining stocks lower

Indices:

European markets:

Banks and miners took the European markets lower on Monday after poor results from HSBC dented financial stocks and further decline in metal prices took mining stocks lower. Henk Potts, a strategist at Barclays Stockbrokers said: "This is a massive week for markets, they're going to be pulled all over the place. I think the market will remain volatile and will react to individual pieces of corporate data and also there are big statements coming out. The Fed statement tomorrow will be absolutely vital in terms of market direction." (source: reuters.com).

In Germany the Xetra Dax lost 0.7 per cent to 6,349.81 and the CAC 40 slid 0.8 per cent to 4,280.63. Britain's FTSE 100 index fell 0.6 percent. (source: ft.com and reuters.com).

US markets:

Stocks in US fell as energy and commodity shares declined on falling oil and metal prices. Investors also feared further losses in financial companies followed by the continued housing slump. Peter Boockvar, equity strategist at Miller, Tabak & Co in New York said: "Oil is down, but it's because global growth is slowing. The panacea that people thought a decline in oil would be has not come to pass. Now the bear market is rolling on to energy, commodity and tech stocks." (source: reuters.com).

Another analyst, Wayne Wilbanks, chiefinvestment officer at Wilbanks Smith & Thomas in Virginia said: "There's going to be continued rotation out of energy stocks if we continue to see weakening oil prices.'' (source: bloomberg.com).

The benchmark S&P 500 pared early losses but still closed 0.9 per cent lower at 1,249.02 points. The Dow Jones Industrial Average lost 0.4 per cent to 11,284.15. The Nasdaq Composite fell 1.1 per cent to 2,285.15. (source: ft.com).

Asian markets:

Markets in Asia also moved lower like its European and US counterparts on Monday. Disappointing results from HSBC took markets to the lower end. Ben Kwong, COO of KGI Asia, said:"HSBC results were at the lower end of the market expectations and the share has run up quite a bit in recent times on rumours that the Chinese sovereign fund is buying a stake, so we should see some selling pressure there today." (source: reuters.com).

Across the markets, the Nikkei fell 161 points to 12,933 with the Hang Seng slumping 347 points to 22,541. (source: sharecast.com).

Currencies:

After Friday's slight rise in dollar, the currency rose again against the euro and the yen on Monday as price of oil dropped further and good US economic data brought optimism amongst investors about the prospects of a broader economy. Andrew Busch, global foreign exchange strategist at BM0 Capital in Chicago said:  "There has been a tremendous movement in the oil price and that's pretty much the major story. The personal income and spending numbers were much stronger than expected, as well as the factory orders. These will go into the computation of the second quarter GDP number. I am expecting that number to be revised up from 1.9 to somewhere in the territory of 2.5 percent due to these numbers." (source: reuters.com).

In late New York trade, the dollar was last up 0.5 percent at 108.24 yen. The euro was up 0.1 percent at $1.5584 in late New York trade. (source: reuters.com).

Commodities:

Oil:

Oil fell below $120 a barrel, for the first time after May on Monday, as new data showed that consumers are slowing down their consumption of energy to curb high inflation costs. (source: ft.com). The Federal Reserve's meeting on Tuesday also cause some anxious moments for investors who may be expecting a rise in borrowing rates to curb inflation, but analysts feel that it may not be an option. (source: sharecast.com).

US crude for September delivery fell $3.69 to settle at $121.41 a barrel on the New York Mercantile Exchange. (source: sharecast.com).

Gold: 

Gold also fell with fall in oil prices and rise in dollar as commodities are suffering from a broad sell-off. The speculation that the Fed may raise interest rates also hurt the precious metal. (source: sharecast.com).

Gold for December delivery dropped $9.60 to close at $907.90 an ounce on the New York Mercantile Exchange. (source: sharecast.com).

Bonds:  

Yields move inversely to bond prices

US Treasuries:

Treasuries also saw declines on Monday, as the focus was shifted to towards inflation data. Traders are also waiting for the Federal Reserve's meet on Tuesday to decide upon interest rate, whether to raise it or keep it as it is. (source: reuters.com).

The benchmark 10-year Treasury note's yield rose by 3.95 percent. (source: reuters.com).

European Bonds:

Elsewhere in Europe, bonds traded higher after a good economic data released. The European Central Bank may also be meeting on 7 August, which many investors are eyeing as an important meeting where the ECB may keep rates unchanged. Sean Meloney, a debt strategist in London at Nomura International Plc said: "We may have already seen a peak in inflation and that, balanced with sharply deteriorating macro economic conditions, could be beneficial for bonds in the longer term. There's going to be a bit of nervousness ahead of the ECB meeting.''  (source: bloomberg.com).

The yield on the German 10-year bund, Europe's benchmark government security, was little changed at 4.34 percent at 7:15 a.m. in London. (source: bloomberg.com).

Economic Calendar - 5 August 2008:

04:30am  RBA Interest Rate Decision - Australia: RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view on the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish. Previous rate was 7.25%. (High volatility expected).

18:15pm Fed Interest Rate Decision - United States : The Board of Governors of the Federal Reserve announces an interest rate. This interest rate affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. It also tends to affect the exchange rate. If the Fed is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the USD. Previous rate was 2%. (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.)