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Financial Focus: 26th October 2010

Following better-than-expected home sales from the US, Stateside markets made strong gains before being pegged back to lower levels during the last session. The FTSE 100 recovered yesterday to end slightly up, but investors may step back today and assess whether markets should go higher. Much will hinge on the expected quantitative easing (QE) announcement due out of the US and if the dollar will continue to weaken, artificially supporting commodity and equity markets.

While major currency pairs were little changed, traders are hinting that they believe the dollar may launch a comeback, believing that the market has already priced in potential QE measures expected from the Fed next week. Sterling is a bit lower against the dollar, and any rise in the currency might be limited by the negative impact of fiscal tightening in the UK.

With the likelihood of QE next week, gilts are likely to start higher today. In a research note, Goldman Sachs said that the Fed asset purchases could total $2 trillion. Analysts are predicting that the UK economic growth may have slowed in the third quarter, and more gloom from Mervyn King (Governor of the BoE) who said that the new, tougher, bank capital and liquidity requirements are not enough to stop another crisis from occurring.

Oil prices were lower in Asian trade as investors engaged in profit taking following a rally in New York brought about by the weaker US dollar. “It could be profit-taking as the oil market is taking a breather,” said Serene
Lim, a commodities analyst with Australia’s ANZ bank. “There doesn’t seem to be much supportive news (at the moment),” she said.

Gold’s move from the October 14 record of $1,387 to its Friday low of $1,315 saw “stronger physical buying” emerge in “key Asian markets led by India and China. Traders are in a buoyant mood, believing that the G20 finance ministers’ agreement to avert currency wars will provide a solid platform for gold to continue to recover. Copper is also in demand from China and this could also push the price up, analysts predict.

DJIA: 11164.05 / +31.49 / +0.28%
Nasdaq: 2490.85 / +11.46 / +0.46%
S&P 500: 1185.62 / +2.54 / +0.21%
FTSE 100: 5758.40 / +17.03 / +0.30%
FTSE 250: 10990.36 / +95.63 / +0.88%
DJ UK Smaller Companies: 918.51 / +0.66 / +0.07%
Nikkei 225: 9424.16 / +23.00 / +0.24%

USD/JPY: 80.77 / -81 / -0.04%
EUR/USD: 1.3955 / -58 / -0.09%
GBP/USD: 1.5729 / -32 / -0.04%
EUR/GBP: 0.8870 / -74 / -0.03%

Asian Spot Gold / $1339.60 / -$0.70 / 0.0%
Comex Gold: $1339.00 / +$0.50 / 0.0%
Brent Crude Oil: $83.45 / -$0.09 / -0.1%

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