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Financial Focus: 4th January 2011

London’s blue chips take the FTSE through 6000;
Good results not enough for US Fed to change QE2;
US factory orders rise expectantly in November;
High oil prices threaten the fragile recovery;
Asian stocks lower as commodities retreat.

The minutes from the US Fed’s last meeting concluded that the recent upturn in the country’s economic recovery is not enough to consider changing their plan to buy a total of $600bn in long-dated Treasury bonds by the end of June 2011.

Surprisingly, new orders for US factory manufactured goods, rose by 0.7% in November, making up the lost 0.7% in October.
Despite economists’ views that there would be a decline of 0.1% in November, orders have in fact risen in 4 out of the past 5 months.

With levels not seen since 2008, and with a particularly strong run in the final quarter of 2010, perhaps it is not surprising that global markets outside of the UK, which was yet to make its first moves of 2011, would pause to take breath.

Having retuned from the long weekend break, shares in London raced to catch up with the New Year gains in Asia and the States.  Investors remained positive throughout Tuesday’s session, and seemed determined to draw a firm line under the 6000 points line.  Having followed the global surge into 2011, the FTSE may catch up with their retreat today, with financial spreadbetters expecting the market to open down 14 points.

Although US investors began profit taking during yesterday’s trading, the surprisingly good news from the factory orders report rallied large-cap stocks and helped markets to improve by the close.  Investors were also nervous about growth worries in Europe, which caused a drop in the euro and a lift in the dollar.

Asian stocks retreated for the first time in eight days during overnight trading, as the dollar strengthened and commodity prices dropped.  Commentators feel that investors were keen to bank some profits following a very energetic start to 2011.

Despite the ECB’s bond purchases, the Eurozone’s debt crisis continues to worry investors.  These concerns saw the euro drop for a third day against the dollar and a second day against the yen.  The dollar traded near a one-week high against the yen, with a report due out that may well show that the US services industries grew at the fastest pace for 4½ years.  This report, coupled with another that is likely to show that US companies added the most jobs in three years, further strengthens the belief that the world’s largest economy is in strong recovery and makes the dollar even more attractive.

Oil prices dropped for a second day during overnight trading, which analysts put down to an expensive dollar and some profit taking.  The trend towards high oil prices, however, is believed to be threatening the global economic recovery, according to the Chief Economist at the IEA, the leading energy watchdog.  Although oil prices dropped over the past two days, the IEA are putting pressure on the Opec oil cartel to increase production, as oil ministers in the Opec countries decided last month to leave their quotas unchanged.

Commodities retreated sharply to their lowest levels in seven weeks, losing ground to a rising dollar and profit taking, but analysts believe that this is likely to be a short-term set back as the global economic recovery picks up pace.  Gold held on to its gains through the night, following a massive sell-off on Tuesday.

FTSE 100: 6,014 +1.93%
S&P 500: 1,270 -0.13%
Eurofirst 300: 1,142 +0.86%
Nikkei 225: 10,381 -0.17%
Shanghai Comp: 2,837 -0.55%

$ per €: 1.3275 -0.23%
$ per £: 1.555 -0.22%
¥ per $: 82.06 +0.07%
¥ per €: 108.93 -0.16%
€ per £: 1.1712 -0.01%

WTI Crude: $89.26 -0.13%
Brent Crude: $93.34 -0.20%
Gold: $1,384 +0.40%
Copper: $4.34 -0.54%
Corn: $6.05 -0.58%

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