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Financial Focus: 25th January 2011

Russia rocked by suicide bomber
High demand for Eurozone debt
Spain gets tough on banks
Cocoa and cotton in short supply
OPEC consider increasing oil production
Asian shares lifted by Wall Street

NEWS:
Russia’s financial markets were shaken by the suicide bomb at Domodedova airport on Monday, with equities falling 2.4% as the news came through that the bomb had left 35 people dead and more than 100 injured. Shares recovered quickly to regain some ground, with investors determined that the act would not be allowed to destabilise the administration or the economy of the country.

Initial bids of more than €20bn for five-year Eurozone bonds were placed by investors yesterday, ahead of todays planned opening of the order books for €5bn of the bonds. It seems very likely that the European Financial Stability Facility will increase the amount on offer to cope with more of the demand.

Spain has told its weaker savings banks to raise more capital or face nationalisation, as the finance minister, Elena Salgado, moves to restore confidence in the country’s economy. Salgado said yesterday that all financial institutions would have to have a minimum capital ratio of 8%.

MARKETS:
US investor sentiment was buoyed last night with Halliburton, the second biggest oilfield service company, reporting that its fourth-quarter earnings had more than doubled. The news helped the S&P materials sector, and US markets generally, to record positive results and finish with good gains.

Many Asian shares rebounded overnight on the back of a strong performance on Wall Street last night and news of better-than-expected inflation figures from Australia. The MSCI Asia Pacific index was up 0.9%, and the Nikkei has gained more than 1%. The only real loser was China, where stocks fell on speculation that additional policy tightening would reduce demand for commodities.

European markets are forecast to open with gains of around 0.4% today, boosted by Wall Street’s strong finish overnight and a positive performance in most of the Asian markets.

CURRENCIES:
The dollar fell toward a two-month low against the euro, and against 12 of its 16 major peers, before the Fed policy makers begin a two-day meeting to discuss whether US economic is enough to prompt a tightening of monetary policy. The euro strengthened against the yen to record a near two-month high, as Asian stocks advanced, boosting demand for higher-yielding assets. The Aussie dollar declined for the first time in three days after consumer price figures showed that inflation rose to 0.4% for Q4, considerably less than the expected 0.7%.

ENERGY:
Crude oil fell as much as 0.6% overnight after Saudi’s oil minister signaled that OPEC might bolster production amid rising fuel demand. Ali al-Naimi said in Riyadh that worldwide oil demand may increase in 2011 by 1.8 million barrels a day, or 2%, and that OPEC’s policy change would meet any additional requirement for crude.

COMMODITIES:
Cocoa prices jumped by 7% yesterday as the president elect of Ivory Coast imposed a one-month export ban to stop revenues reaching the incumbent president, Laurent Gbagbo. The country produces about 40% of the global supply of cocoa. Cotton prices have risen to a record high as it was revealed that 90% of last year’s crop and stocks in the US had already been sold.

DATA AT 0700 GMT (FT.COM)
FTSE 100: 5,944 +0.81%
S&P 500: 1,291 +0.58%
Eurofirst 300: 1,151 +0.25%
Nikkei 225: 10,464 +1.15%
Shanghai Comp: 2,672 -0.89%
Dow: 11,981 +0.92%

$ per €: 1.3648 +0.10%
$ per £: 1.5984 -0.01%
¥ per $: 82.43 -0.07%
¥ per €: 112.50 +0.03%
€ per £: 1.171 -0.09%

WTI Crude: $87.58 -0.33%
Brent Crude: $96.57 -0.04%
Gold: $1,345 0.00%
Copper: $4.29 -1.19%
Corn: $6.50 -0.76%

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