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Financial Focus: 17th January 2011

Swiss franc records biggest loss against euro for 7 months;
Investors prefer Europe’s junk to risky bank debt;
Nikkei up 2.6% this year on foreign investment;
Euro advance limited until Zone’s safety net in place;
UK and Russian energy cooperation spooks the US;
US markets on holiday today.

NEWS:
The Swiss National Bank said it might have posted record losses in 2010, as the euro slump eroded the value of its currency reserves. The head of the Bank, Philip Hilderbrand, said that the Eurozone crisis was an “enormous burden”. The franc posted its biggest loss against the euro for seven months this week, but Hilderbrand said “I have every confidence in my European colleague’s ability to solve these problems”.

Investors are judging junk bonds sold by companies in Europe to be safer than banks’ riskiest debt for the first time as concerns heighten that lenders may lose money during the region’s financial crisis according to Bank of America Merrill Lynch index data.

EQUITIES:
Following a rise in the Dow of 1% and Nasdaq of 1.9% last week, US markets will stay closed today for Martin Luther King Jr. Day. Apple, General Electric, Google and eBay, are all due to publish results on Tuesday, and investors will be heavily influenced by these in this week’s trading.

Asian markets softened overnight, as Beijing moved to tighten its monetary policy by raising banks’ reserve requirement ration by 0.5%. With US corporate earnings reports on hold until markets reopen after today’s holiday, traders seem unwilling to take firm positions and it is likely that the MSCI Asia Pacific index will end its five consecutive weeks of gains this morning.

Despite the general trend in Asia, foreign buying has forced the Nikkei up 2.6% this year, and 15% since the start of November last year.

CURRENCIES:
The euro remains just below a one-month high in Asian trading, with traders indicating that the Eurozone’s safety net for sovereign debt has to be in place before the currency can make any significant gains. The euro staged a strong comeback last week from a four month low by the positive indicators coming from the bond auctions in Portugal and Spain.

ENERGY:
BP and Russia’s state controlled Rosneft have agreed to a share swap on Friday under which they will explore jointly a huge offshore area that BP says may contain billions of barrels of oil and gas. The partnership has the backing of both governments, but is likely to irritate the US, with American lawyers asking for the deal to be examined to see if it affects US national and economic security.

COMMODITIES:
Gold recovered overnight from its fall of 1% on Friday, with recent volatility in the market place helping the safe-haven commodity. Gold prices are likely to be affected by the inflation data and fourth-quarter figures coming out of Beijing on Thursday, but even more so by the economic position in the US and Europe.

DATA AT 0600 GMT (FT.COM)
FTSE 100: 6,002 -0.36%
S&P 500: 1,293 +0.74%
Eurofirst 300: 1,156 -0.10%
Nikkei 225: 10,502 +0.03%
Shanghai Comp: 2,714 -2.79%
Dow: 11,787 +0.47%

$ per €: 1.3325 -0.45%
$ per £: 1.5847 -0.11%
¥ per $: 82.91 +0.13%
¥ per €: 110.48 -0.32%
€ per £: 1.189 +0.34%

WTI Crude: $91.18 -0.24%
Brent Crude: $98.35 -0.03%
Gold: $1,365 -1.57%
Copper: $4.41 +0.96%
Corn: $6.51 +0.31%

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