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Financial Focus: 13th December 2010

EU consider shake up of rescue fund;
Former EC boss accuses EU of “short-term” politics;
US consumer sentiment and exports higher;
China holds interest rates but pledges to fight inflation;
Asian markets up overnight.

EU officials may overhaul the €440bn European Financial Stability Facility (EFSF) to give it alternative strategies to bailouts, as
Romano Prodi, ex head of European Commission warns that “short-term politics” are taking their toll.  New measures may allow
the EFSF to buy the bonds of distressed countries, which is the strategy being used by the European Central Bank at present.

China’s prices rose more than 5% in November, but the country’s leaders held off an immediate interest rate rise preferring to
increase by 50bps the amount of reserves commercial banks must keep with the central bank.  This has given relief to investors and helped the markets considerably as the first markets opened on Monday morning.

Data from the US on Friday helped investors get into a festive mood, as figures showed that early-December was higher amongst
American consumers.  October’s exports rose to a two-year high in October, which had analysts hopeful that this is another sign of global recovery.

Asian stocks rose on Monday, led by Chinese shares after Beijing held interest rates.  The gains on Wall Street also boosted the market, with Asian investors buoyed by upbeat US data released at the end of last week.

Following the positive news out of the States, miners led a rally on the FTSE on Friday.  Gains were limited, however, by the rumours of a Chinese interest rate hike, which had banks and Asia-focused companies leading the retreat.

Investors in US and European stock markets will be eyeing the economic data and surveys due out this week. December’s German preliminary purchasing managers’ survey will indicate any signs of declining demand, with analysts expecting it to show a two-speed Eurozone, with Germany in front and periphery countries bringing up the rear.  Little is expected from Tuesday’s meeting of the Fed’s open market committee, given their move to QEII in November.  Tuesday’s UK consumer figures are predicted to show prices are up from 3.1% in October to 3.2% in November.

The euro slipped on Monday, looking set to remain in its downtrend for now, while the dollar held steady, supported by higher Treasury yields after improving U.S. data late last week. The euro has been under steady pressure in recent weeks on concerns over debt levels in peripheral euro zone states, and many in the market expect that pressure to remain with some looking for a re-test of this month’s low at $1.2969.

Oil prices were higher on Monday after OPEC agreed at the weekend to keep crude oil output levels flat. US crude for January rose 29 cents to $88.08 a barrel by 0615 GMT. ICE Brent rose 46 cents to $90.94.  With US consumer sentiment higher, and the colder-than-normal temperatures across Europe and severe winter weather in the US, energy demand is likely to be boosted further in the coming weeks.

LME Copper  reached new levels overnight, increasing as much as 0.8% in Asian trading.

FTSE 100 5,813 +0.09%
S&P 500: 1,240 +0.60%
Eurofirst 300: 1,126 +0.16%
Nikkei 225: 10,294 +0.80%
Shanghai Comp: 2,923 +2.88%

$ per €: 1.3195 -0.08%
$ per £: 1.5784 -0.14%
¥ per $: 84.11 +0.18%
¥ per €: 110.98 +0.10%
€ per £: 1.196 -0.06%

WTI Crude: $88.25 +0.52%
Brent Crude: $91.32 +0.93%
Gold: $1,387 +0.16%
Copper: $4.15 +1.21%
Corn: $5.65 +0.76%

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