News and Views: 7 August, 2008

Shares in Europe continued their jubilant trading on Wednesday after strong results from BNP Paribas and Commerzbank took financials higher

Indices:

European markets:

Shares in Europe continued their jubilant trading on Wednesday after strong results from BNP Paribas and Commerzbank took financials higher along with rising mining stocks. (source: ft.com).

Bernard McAlinden, market strategist at NCB Stockbrokers in Dublin, said:"The results from BNP and Commerzbank were ok, which helped and the Federal Reserve also reassured at the margins. Its statement implicitly seemed to signal that they are not close to raising rates and that helped as well." (source: reuters.com).

Around Europe Britain's FTSE was up 0.6 percent, Germany's DAX up 0.7 percent and France's CAC up 1.4 percent. (source: reuters.com).

US markets:

Stocks in the US were no different. They rose modestly as energy and materials stocks climbed after decent results from Cisco were released. (source: ft.com).

John Forelli, portfolio manager at Independence Investments LLC in Boston, said: " "It's good to see the market holding onto yesterday's gains. Cisco is probably responsible for much of the Nasdaq's move."  (source: reuters.com).

Across the markets, the Dow Jones rose 40 points to 11,656 with the Nasdaq rising 28 points to 2378. The S&P 500 finished up 4 points. (source: sharecast.com).

Asian markets:

Markets in Asia also posted strong gains on Wednesday on declining oil prices and Federal Reserve's decision not to raise interest rates. (source: reuters.com).

The Hong Kong market was closed due to warnings of severe tropical storm 'Kammuri' hit the city. (source: ft.com).

The Nikkei 225 index closed up 340 points at 13,254. (source: sharecast.com).

Currencies:

Dollar's gain was further pushed up against the yen when crude oil prices declined and US stocks recorded gains. (source: reuters.com).

A governemnt official in Japan speculated that the Japanese economy may have entered recession giving a sudden jolt to yen which declined after these comments. Dollar's rise against the euro also brewed trouble in Europe, where the German growth data due for release next week, may show slowdown in economy. There was speculation that the ECB may not raise interest rates despite the rising inflation.  (source: ft.com).

Stuart Bennet, of Calyon, thinks that the ECB's focus on above-target inflation,  has not shown much change in the currency market even after release of weak data from the euro zone. But he added, that if the euro zone is under recession then this may start effecting the currency market, further pushing the euro down. Whereas other analysts said that the US Federal Reserve's decision to hold interest rates at 2 percent has supported the dollar.  John Normand, of JPMorgan, said: “With the US the only major economy that is not sliding into recession, the expected direction of Fed policy should sustain the dollar’s gains versus the euro and commodity currencies.” (source: ft.com).

The dollar was last 1 percent up at 109.38 yen, a session high. The dollar rose 0.1 per cent to $1.9505 against the pound. The euro lost ground, dropping 0.2 per cent to a seven-week low of $1.5409 against the dollar.  (source: reuters.com and ft.com).

Commodities:

Oil:

Yesterday oil fell to as low as $117 a barrel after the US Department of Energy released a report which indicated rise in inventories amidst low demand. (source: ft.com).

Light sweet crude for September finished 59 cents lower at $118.58 a barrel. (source: sharecast.com).

Gold: 

With lower oil prices and strengthening dollar, gold declined further. (source: sharecast.com).

Gold for December delivery fell $3.10 to close at $883 an ounce on the New York Mercantile Exchange. (source: sharecast.com).

Bonds:  

Yields move inversely to bond prices

US Treasuries:

Rise in US stocks prompted Treasuries to continue their decline yesterday. But the Treasury debt auction of 10 year notes did attract some attention, helping the government sell $17 billion. John Canavan, analyst at Stone & McCarthy Research Associates in Princeton, New Jersey, said: "Demand was strong. The cash 10-year note was yielding 4.09 percent a few minutes before the auction and the yield (which moves inversely to the price) eased to 4.06 percent after the auction." (source: reuters.com).

Another analyst, Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi UFJ in New York, said:  "The solid demand for the 10-year notes was not surprising since the drop in price since the FOMC results yesterday made yield levels attractive." (source: reuters.com).

Thirty-year bond's yields rose to 4.68 percent. (source: reuters.com).

European Bonds:

Like the US treasuries, bond in Europe declined with very good trading results in the stock market. A fall in German factory orders in June may have given the ECB policy makers one less reason to raise interest rates tomorrow. Niels From, chief analyst at Nordea Bank AB, in Copenhagen, said:"The focus has really been on the data, which has been disappointing. People are speculating the ECB may take a more dovish tone tomorrow. They have to walk a thin line.'' (source: bloomberg.com).

The yield on the two-year German note fell as much as 6 basis points to 4.19 percent, and was at 4.25 percent by 4:56 p.m. in London. (source: bloomberg.com).

Economic Calendar - 7 August 2008:

11:00am  BoE Interest Rate Decision - United Kingdom: BoE Interest Rate Decision is announced by the Bank of England. If the BoE is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the GBP. Likewise, if the BoE has a dovish view on the UK economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish. Previous rate was 5%. (High volatility expected).

11:45am ECB Interest Rate Decision - 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 4.25%. (High volatility expected).

12:30pm ECB Trichet's Speech - European Monetary Union : The European Central Bank's president Jean Claude Trichet was born in 1942, Paris. He graduated from the University of Paris in the facility of economics. In 2003 he became the president of the European Central Bank. He gives a press conference as to how the ECB observes the current European economy and the value of EUR. His comments may determine a short-term positive or negative trend. If he shows a hawkish outlook, that is seen as positive (or bullish) for the EUR, while a dovish is seen as negative (or bearish). (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.)