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Financial Focus: 15th February 2011

UK inflation increases again in January;
Bailout not needed, says Portuguese officials;
Bailout fund to be doubled in 2013;
New EBA boss will introduce “single rulebook”;
China’s monetary tightening measures not enough.

NEWS:
UK INFLATION figures, due to be released at 9.30am this morning, will reveal a Consumer Price Index figure of 4% and a Retail Price Index figure, considered a more accurate measure of inflation by many economists, to be closer to 5%.

PORTUGUESE officials insist the country’s finances are strong enough to avoid a bailout, despite 10-year-bond yields increasing to 7.45% yesterday. Additional pressure for a bailout came as reports emerged during the day that Portugal’s economy shrank during the last quarter of 2010.

THE LENDING capacity of the rescue fund for debt-laden countries will be doubled in 2013, but EU leaders made no move to shield Portugal from its current financial crisis.

EUROPEAN BANKS are set to get a “single rulebook” to coordinate regulation in Europe. Andrea Enria, chairman of the new European Banking Authority (EBA) based in London, intends to impose a more uniform oversight on banks, and prevent regulatory competition between countries.

CHINA’S INFLATION for January was lower than feared, but at 4.6% it is still higher than the 4% target. Some believe that the reweighting of the basket of goods from which inflation is calculated has had an adverse effect, but Beijing is likely to increase interest rates again early in the year to control growth.

EQUITIES:
ASIAN STOCKS rose slightly on Tuesday, following China’s inflation figures and investors’ cautious move back to riskier assets. Japanese stocks closed on a new 10-month high, with the MSCI Asia Pacific index excluding Japan ending up 0.08%.

EUROPEAN SHARES are likely to pause today after hitting 29-month highs yesterday, as traders wait for inflation, growth and other economic data. The FTSE 100 is seen opening unchanged to down 1 point, Germany’s DAX is expected to open unchanged to 2 points higher, and France’s CAC 40 is seen up 1-3 points, according to financial spreadbetters.

UK MARKETS ended yesterday very close to their starting points, with traders not able to follow the strong lead set by Asia. Technical analysts warn that the FTSE needs to break through resistance levels at 6,091 and then 6,117 if it is to get out of the current trading range.

CURRENCIES:
THE YEN weakened against most currencies after China’s inflation was lower than expected and Asian stocks were in demand. The euro strengthened overnight on speculation that good economic reports will come from Eurozone countries today.

ENERGY:
OIL prices rose in Asian trade, with worries over Middle East unrest causing fresh supply worries, and with robust demand from China. China’s crude oil imports rose 27% from a year ago, as the country’s trade surplus fell to its lowest in nine months in January.

COMMODITIES:
COPPER rallied overnight, with prices setting a new high on London futures markets, as fears eased that China might adopt immediately a more aggressive monetary tightening regime. CORN prices are set to surge as global stocks decline and increased government purchases reduce general availability of the commodity.

DATA AT 0710 GMT (FT.COM)
FTSE 100: 6,060 -0.05%
S&P 500: 1,332 +0.24%
Eurofirst 300: 1,178 +0.32%
Nikkei 225: 10,747 +0.20%
Shanghai Comp: 2,915 +0.53%
Dow: 12,268 -0.04%

$ per €: 1.3513 +0.19%
$ per £: 1.6044 +0.07%
¥ per $: 83.45 +0.23%
¥ per €: 112.77 +0.37%
€ per £: 1.1867 -0.16%

WTI Crude: $85.35 +0.64%
Brent Crude: $103.43 +0.34%
Gold: $1,362 -0.22%
Copper: $4.62 0.00%
Corn: $6.98 +0.32%

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