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Financial Focus: 3rd January 2011

Fresh worries over the euro as Estonia joins the Eurozone;
ECB buying up bonds of shaky European countries;
US markets surge on twice-expected construction spending;
European investors bring in 2011 in a positive mood;
Copper reaches record highs and Oil not far behind.

NEWS:
The European Central Bank bought almost €1.2bn in bonds from heavily indebted European countries in the final two weeks of 2010.  Buying bonds supports their prices and takes the pressure off of issuing governments and the banks that hold them.

US markets jumped on Monday following a US Department of Commerce report showing that construction spending in November rose twice as fast as expected. Spending in this sector, which has lagged in the recovery, rose to $810.2bn in the month, up 0.4% from October.

European stock markets were encouraged to make a good start to the year following a report showing manufacturing strength on the continent.  The London markets were closed, but Germany’s DAX rose 1.1% and France’s CAC gained 2.5%.

EQUITIES:
Asian-Pacific stocks extended gains overnight, tracking US markets’ positive start to 2011.  The FTSE Asia-Pacific Index is up 0.4%, with only Australia’s S&P/ASX falling as the country counts the cost of the devastating floods in the state of Queensland.

Following a very bright start to 2011 in European markets, the DAX and CAC are expected to back off slightly.  The FTSE, yet to make it’s New Year debut, is seen opening up by as much as 76 points, which would see the UK’s blue chip index at 5,976.

CURRENCY:
The Euro gained some ground between Christmas and New Year but came under pressure early in 2011 as Estonia joined the Eurozone. While the country’s Prime Minister, Andrus Ansip, was quick to say that Estonia is proud to be a Eurozone member, analysts predict that Europe’s deepening financial crisis is likely to dissuade bigger eastern European countries from joining during this decade.

The dollar rose for a second day against the Yen in Asian trading, as a report showing that orders placed with US factories have reduced at a slower pace.  This, together with other positive signs at the end of 2010, encouraged investors to believe that the world’s biggest economy is on the road to a sustained recovery.

China’s yuan strengthened beyond 6.6 per dollar for the first time in 17 years, prompting forecasters to predict that it’s appreciation may slow this year as China seeks to control inflation.

ENERGY:
Oil prices were close to a 27-month high in New York in support of the optimistic signs of a global economic recovery and an abnormally high demand for heating oil.  Prices dropped back from Monday’s near-record highs, but analysts feel that oil sentiment has turned bullish and that prices will continue to rise.

COMMODITIES:
Copper was up at a record high on the London Metal Exchange and advanced to a 3½ year high in Shanghai during overnight trading as investors speculate that global supplies will struggle to meet demand as manufacturing booms in the worldwide economic recovery.

Spot gold is near its all time record high, with speculators looking for signs of strength above $1,400.  If this is seen, many analysts believe that the precious metal could continue up to $1,500 per troy ounce.

DATA AT 0700 GMT (FT.COM)
FTSE 100: 5,900 -1.19%
S&P 500: 1,272 +1.13%
Eurofirst 300: 1,132 +0.95%
Nikkei 225: 10,398 +1.65%
Shanghai Comp: 2,847 +1.38%

$ per €: 1.3337 -0.13%
$ per £: 1.5475 -0.05%
¥ per $: 82.14 +0.51%
¥ per €: 109.55 +0.38%
€ per £: 1.1601 +0.11%

WTI Crude: $91.41 -0.15%
Brent Crude: $94.79 -0.05%
Gold: $1,423 0.00%
Copper: $4.43 -0.49%
Corn: $6.20 -0.04%

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