Markets off to a flyer!

Markets off to a flyer!

Really positive start to the morning and to the week as news filtered through in Asian trading that CIT received a $3 billion rescue package from a group of bond holders to stave off bankruptcy. CIT has a sizeable number of clients among fashion labels and retailers and the perception of bankruptcy was leading to negativity in the equity markets. On the back of this news we have seen a big shift in Yen crosses and a sell off in the USD…GBP/JPY has moved up from 153.80 to 156, USD/JPY from 93.20 to 94.60. The pound has pushed up to 1.65 on the USD from 1.6350 and the euro has pushed to 1.42 against the USD. Ultimately we are seeing a shift back into risk appetite this morning with USD and YEN weakness, strength in the commodity currencies such as the AUD, ZAR and CAD and also a boost for the pound and the euro.

Other news out this morning which was sterling supportive came from UK Rightmove house price data which rose 0.6% for July. This data supports the sentiment that the rate of the fall in house prices is markedly slowing and a bottom may now be in place. It will be interesting to see if the equity markets continue to rally on this morning’s positive kick start- the FTSE 100 has started positively. Sterling will look to sustain a move to 1.66 against the dollar; against the euro we are still a little flat at 1.16 and a move towards 1.17 could be on the cards if the good sentiment continues. A portion of news that could be potentially euro negative was reported by the Telegraph- the German property giant Hypo Real Estate may require at least 10 billion euros in fresh capital to stay afloat. The euro has not suffered on this news in the markets as yet as it has been largely buoyed by a weaker USD.

In other data snaps Australian second quarter PPI came in at -0.8%- the big fall was attributed to a fall in import prices as the value of the AUD has surged. In New Zealand, the June services sector index fell 1.2 points as the economy continues to struggle amid the recession.

For the week ahead key data to look out for the UK will be the Bank of England minutes on Wednesday and retail sales on Friday. We also will see the interest rate announcement from the Bank of Canada. Tomorrow Ben Bernanke will testify on the US economy and the strength of the US dollar.

report by Phil McHugh

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