Wednesday, June 09, 2010

Chinese export hopes boost confidence

Chinese export hopes boost confidence
By Jamie Chisholm, Global Markets Commentator
Copyright The Financial Times Limited 2010
Published: June 9 2010 08:46 | Last updated: June 9 2010 13:19

Wednesday 12:15 BST. Reports of a surge in China’s exports has lent support to riskier assets, though the spectre of the eurozone debt crisis continues to menace investors.

The FTSE All-World equities index is up 0.2 per cent and commodities are higher after Reuters reported that a senior Chinese government official had claimed the nation’s exports jumped 50 per cent in May compared with the previous year.

This has raised hopes that such expansion points to a more robust level of global demand than previously believed – a trend perhaps capable of counteracting the fallout from the eurozone crisis.

US equity futures have reversed much of an early loss and are now pointing to a flat opening for Wall Street. The Shanghai stock market has enjoyed its best day for two weeks, bouncing off 12-month lows with, at one stage, a 3 per cent advance.

However, worries linger about the eurozone. The euro is again softer versus the dollar and remains close to an eight-year low versus the yen. Meanwhile, a record €365bn was lodged with the European Central Bank overnight, as the bloc’s banks remain wary of lending to their peers.

Such concerns are not restricted to the eurozone, of course. Comments by rating agency Fitch on the formidable difficulties facing the UK’s public finances reminded investors that budgetary problems were widespread in much of the developed world and spooked markets on Tuesday.

But it is not just fiscal issues that are hurting sentiment. The symbiosis of fiscal and monetary policy is also affecting investors’ attitude towards Jean-Claude Trichet, with Bloomberg saying almost half of those who expressed an opinion on the ECB president viewed him negatively, compared with 27 per cent in January.

The lack of confidence in major institutions, both regulatory and corporate, is a rolling feature of the recent market turmoil. Still, traders will be keen to hear what Mr Trichet says about monetary and fiscal conditions in the eurozone in the press conference following Thursday’s ECB interest rate decision. The Bank of England will also deliver its verdict on monetary policy tomorrow.

☼ Factors to Watch. The strength of the Brazilian economy should be confirmed when the central bank is expected to raise interest rates by 75 basis points to 10.25 per cent later today. The US Federal Reserve publishes its “Beige Book”. Traders will want to see more evidence that commercial activity is strengthening. ☼

● Asia. Shanghai turned an initial loss into a 2.8 per cent gain following the export report. Hong Kong rose 0.7 per cent. However, the news came too late to have any impact on some of the region’s markets. Sydney could only manage a 0.1 per cent advance, while Tokyo lost 1 per cent as a stronger yen and worries about demand from Europe continued to weigh.

● Europe. Wall Street’s rise overnight and the news out of China provided an early sharp lift for the continent’s bourses. However, just like on Tuesday, sellers quickly moved in to pare gains and the FTSE Eurofirst 300 is now up 0.6 per cent and London’s FTSE 100 is down 0.1 per cent, hobbled by another heavy per fall in BP shares.

● Forex. The euro has pared some of its early losses as risk appetite has picked up. But the single currency is still down 0.1 per cent versus the dollar at $1.1962 and off 0.2 per cent at Y109.39 – close to four- and eight-year lows, respectively.

The dollar index, which tracks the buck against a basket of its peers, is up 0.2 per cent at 88.23.

● Debt. The improved mood is curtailing the buying of sovereign havens. The yield on US 10-year Treasuries is up 1 basis point at 3.2 per cent. The US will auction $21bn of 10-year notes later today.

However, a €4.63bn auction of new German two-year notes saw high demand on Wednesday, suggesting an underlying risk aversion among investors. Ten-year Bund yields are tracking the broader trend and are up 1 basis point at 2.54 per cent.

Eurozone “peripheral” sovereign bond yields are a touch lower.

● Commodities. Hopes of better demand from China are boosting the complex. Oil is up 1 per cent at $72.73 a barrel, having been little affected by OPEC’s trimming of its projections for global demand. Copper is up 2.5 per cent at $6,280 a tonne.

Gold is up 0.1 per cent at $1,235 after hitting a new nominal high of $1,251 an ounce on Tuesday.

Follow Jamie Chisholm’s market comments on Twitter: @JamieAChisholm

Wednesday’s Market Menu
What’s affecting risk appetite

Risk on

● China: export report bolsters growth hopes

● Japan: better-than-expected machinery orders

Risk off

● Bank stress: overnight deposits at ECB hit record high

● Euro: still under pressure, while gold demand signals risk aversion

● Strikes: China walkouts ultimately good for workers, bad for margins

● The depth of the negativity towards the prospects for the eurozone were summarised by a Bloomberg survey of global investors, which found that less than a quarter of respondents thought that the region’s €750bn support package would prevent the monetary union’s break up or a member nation’s default.

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