Broker's Notes: US stock markets surge

US stock market/dollar

The new month began with a bang with US stock markets surging by more than 2% and currencies appreciating across board against the US dollar. Safe haven investments eased from low yielding currencies such as the US dollar, Japanese Yen and Swiss Franc as stronger U.S. and Chinese manufacturing data alleviated concerns of a potential double dip recession. The key market focus now is on tomorrow’s Non-farm payrolls from US. It is to be seen whether this renewed buying would sustain or not. If the data prints a substantial increase in private sector jobs, then the Fed’s pessimism may be overdone and the rally may gather further momentum. However if the data disappoints, Fed’s concerns would be acknowledged, leading to reversal in the recent gains.

Euro

Euro spiked against the US dollar despite weaker than expected German retail sales figures. But investors hesitated to bid it further up ahead of the European Central Bank's policy meeting later in the day and Friday's monthly U.S. jobs report. The dollar index, a gauge of the greenback's performance against a basket of six major currencies, was steady on the day at 82.532 after falling 0.9 percent on Wednesday, marking its biggest one-day fall in six weeks.

The European Central Bank (ECB) is seen keeping its benchmark refinancing rate at 1.0 percent at Thursday's meeting. ECB president Mr. Trichet will deliver his usual press conference and we expect him to remain cautiously optimistic. It is also expected to extend lending support for banks despite raising its economic growth forecasts as it seeks to balance a multi-speed recovery among the 16 countries in the euro zone.

Sterling

UK sterling failed to show strong recovery in line with euro as the data as the data came in below the market expectations. Manufacturing PMI for the month of August was expected at 57, down from July’s 57.3, but instead printed a surprising 54.3, the lowest mark in more than 9 months. Though it above the 50 number which still signalled an expansion in activity, it alleviated the concerns that the economic recovery in the manufacturing sector seems to have lost its steam.

Yen

Japanese ruling party powerbroker Ichiro Ozawa, challenging Prime Minister Naoto Kan in a party leadership vote, said on Thursday that action was needed to stem rapid rises in the yen that are threatening the economy. The yen showed little reaction to Ozawa's latest remarks in the debate with Kan on Thursday. A Bank of Japan decision on Monday to boost a cheap loan scheme has done little to weaken the currency, which is hovering near a 15-year high against the dollar. Financial market players have worried the party battle is keeping the government from dealing with economic woes, including a rise in the yen that threatens Japan's export-driven recovery.

Indian Rupee

The Indian rupee pulled back from a firm start and steadied on Thursday as shares trimmed gains and markets watched the dollar's movement overseas. Rupee seems to be getting weaker on global cues and also on the concerns of the India's widening trade gap. The trade deficit swelled in July to its biggest level in almost two years, putting further pressure on the current account and on the need for India to attract capital inflows to avoid pressure on its currency.

Gold

Gold firmed in Europe on Thursday as investors remained on the defensive ahead of a raft of US data, with a rise in holdings of the world's main gold exchange-traded fund pointing to strong appetite for the metal. Investors are now looking ahead to U.S. data releases on factory orders, home sales and employment later in the day for fresh clues on the outlook for the world's largest economy, and to a key U.S. non-farm payrolls report on Friday. Investment demand continues to be firm with the world's largest gold-backed exchange-traded fund, SPDR Gold Trust reporting that its holdings rose to 1,304.028 tonnes on September 1, from 1,302.508 tonnes on August 31.

Source: Richcomm Global, Dubai; www.richcommglobal.com