FT's rolling global market overview - Euro recovers from fresh four-year low

Financial Times:

A week after markets received a boost from the €750bn eurozone bail-out package, it is clear that many investors believe that the move may have halted contagion effects – but it has not solved the longer term fiscal problems facing many developed nations.

Centre stage today is the UK, after George Osborne, the new chancellor of the exchequer, claimed the nation’s finances were in a much worse state than he said he had believed them to be.

This may be the “kitchen sink” approach that is a favourite of fresh corporate finance directors looking to manage expectations, but it spooked sterling, pushing it to a 13-month low versus the dollar and even down against the sickly euro.

● Asian stock markets took a fearful pounding, led by Shanghai plunging 5.1 per cent to a 12-month low as investors continue to worry about the impact of monetary tightening by Beijing. The Hang Seng in Hong Kong burst through the 20,000 level, a big round number that markets tend to view portentiously. It finished down 2.1 per cent at 19,715. The Nikkei 225 in Tokyo fell 2.2 per cent.

Thai stocks fell 2 per cent as the violence intensified.

In Europe, an expected sharp opening slide did not materialise as banks found their feet. The FTSE Eurofirst 300 is up 0.6 per cent and London’s FTSE 100 has gained 0.8 per cent, helped by a bounce in BP on hopes the energy group is getting to grips with the Gulf of Mexico oil leak.

● The euro is off 0.1 per cent to $1.2337. It earlier hit a new 4-year low of $1.2237 as the single currency continued to suffer from Greece-related woes. The dollar and yen are the main beneficiaries of early haven flows. The US unit is up 0.2 per cent to 86.48 on a trade-weighted basis, at one point hitting a 14-month high of 86.88.

Sterling is rallying off its low of $1.4253 hit in early Asian trading, and is now down 0.7 per cent at $1.4425.

● A flight to “safety” that helped US debt during Asian trading has evaporated as US stock futures rebound. The yield on the 10-year Treasury is up 1 basis point at 3.46 per cent. Eurozone bond markets are calmer, the yields on “Club Med” debt moving lower. Greek 10-year yields are off 8 basis points at 8.2 per cent; Spain down 5 basis points to 4.02 per cent: and Portugal lower by 12 basis points to 4.82 per cent.

The promise of a new fiscal watchdog for the UK did little to salve investors anxiety about the state of the nation’s budget. Ten-year gllts are underperforming sovereign peers, their yields up 3 basis points to 3.76 per cent.

● Commodities were hard hit in early trading as Asian investors fretted about the possibility of slowing demand from China. Prices picked up a bit as Europe came on line but copper, the industrial metal benchmark, is still off 1.4 per cent to $6,795 a tonne. Nymex oil at one stage breached the $70 a barrel level and is now up 0.2 per cent at $71.79. Crude was $87 a barrel just two weeks ago.

● Gold has fallen back from last week’s nominal record intra-day high of $1,249, losing 0.1 per cent at $1,229 a troy ounce.

Posted via email from Jim Nichols