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Last Updated: Dec 19th, 2007 - 13:17:15 |
Market News: Asia-Pacific stocks hit new records after Friday's US jobs report; Is gold as good a hedge as some buyers believe?
By Finfacts Team
Oct 8, 2007, 07:05
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Last Monday, Dublin's ISEQ index was 22% off its pre-summer peak, down 7% in September and 16% in Q3 .
However, market news was positive in Dublin last week and Irish shares rallied last week 7.5% amid signs of an easing in concerns about the impact of the credit squeeze on financials and the broader economy.
The index closed up Friday 0.8% at 8,478.48.
The Sunday Times reported that Ryanair, Europe's biggest low fares airline, earned about €60 million last year by not refunding taxes and airport levies to customers who booked but did not fly. The newspaper cited filings with the US Securities and Exchange Commission.
About 3.2 million people booked flights with Dublin-based Ryanair that weren't subsequently taken, the Times said.
On Wall Street, the Dow industrials reached a new high last Monday and closed last week fewer than 22 points from the peak, up 1.2% at 14066.01 and a gain of 12.9% for the year. The S&P 500 added 2% for the week to a record 1557.59, up 9.8% for the year. And the Nasdaq Composite Index gained 2.9% to end at 2780.32, up 15% for the year.
On Friday, the market was boosted by a strong employment report that indicated that the prospects for big US companies in particular, remain strong. Multinationals with high foreign earnings are in favour and the Morgan Stanley Capital Index Emerging Markets index is up 28% from its August low, more than doubling the gain of the US domestic market.
It wouldn't be a surprise this week if the strong jobs data will dampen the spirits of some investors who have been banking on more Fed interest rate cuts.
Asia-Pacific stocks hit new records on Monday following in the wake of Friday's US jobs report.
With Japan closed for a holiday today, Hong Kong's Hang Seng Index jumped 2.12% - a new record and in Shanghai, the CSI 300 Index rose 1.6%, after a shutdown for holidays last week. Key benchmarks in Australia, South Korea, Singapore and the Philippines were also hit new highs.
BHP Billiton, the world's biggest mining group rose 1.2% to A$44.57. Jiangxi Copper Co., China's second-largest biggest producer of copper, jumped 3.4% to HK$27.50
All 18 Western European markets closed up on Friday - - National benchmarks - Europe
Irish Share Prices
Euribor Rates
AIB Daily Report
Bank of Ireland Daily Report
The Financial Times reports today that Northern Rock’s management is considering whether the bank can be kept as an independent entity by using funding of up to £10bn from Citigroup.
Citigroup, which was retained last week as adviser to Northern Rock along with Merrill Lynch, is discussing additional financing to potential bidders. The details are still be negotiated and no firm figures have been agreed.
One option being considered is whether the management, led by Adam Applegarth, could use the funding to stabilise the company.
The Newcastle bank must refinance about £14bn of short- and medium-term funding within 12 months. Citigroup’s terms would be more attractive than the Bank of England’s emergency facility.
Currencies
The US dollar is trading at &1.4132 against the euro; the euro is trading at £0.6925.
For live currency updates, check the right-hand column of the Finfacts home page.
Last week, Ernest-Antoine Seillière, the president of European business lobby group BusinessEurope said that the euro has reached the "pain threshold," and Europe's politicians should press the US, Japan and China to re-evaluate their own currencies at the meeting of the Group of Seven leading nations due to be held in Washington DC on October 20/21st..
"Having crossed 1.40 against the U.S. dollar and appreciating against the Chinese yuan and Japanese yen, the euro exchange rate has attained a pain threshold for European companies," Seillière said in a letter to Jean-Claude Juncker, chairman of the Eurogroup forum of Eurozone finance ministers.
Juncker will chair a meeting of the Eurogroup in Luxembourg Monday evening, to agree a common line ahead of the Group of Seven meeting.
Dr Peter Morici: Why the Europeans should take their Complaints about the Weak US Dollar to Beijing
The Irish stockbrokers Davy said last week on the euro: The dollar has weakened significantly against the euro over the last month. During September, the dollar weakened by 6 cents versus the euro from 1.36 to reach a new record low of 1.42 on October 1st. But for euro area exports, the constant focus on the dollar is misleading: only 6% of euro area exports go to the US. As a result, it is better to focus on the euro’s trade weighted exchange rate.
The trade-weighted rate has not deteriorated nearly as much over the last month. In that period, the euro appreciated only 2.3% against the basket of currencies of its key trading partners compared with a 4.6% gain against the dollar. Year-todate, the euro has increased 3.3% year-on-year (yoy) in trade-weighted terms. Yet it has jumped 8.1% vis-a-vis the dollar.
This analysis shows that we have to be careful about any assumptions that the euro’s rise will lead to markedly softer export and, hence, economic growth in the euro area. Sure a 3.3% rise in trade-weighted terms matters. But that annual rise has been consistent across quarters. In fact, Q3 saw the smallest yoy increase at 3%. That compared with 3.2% in Q2 and 3.7% in Q1. Exports were not affected much in H1, so they are unlikely to feel much pain from the exchange rate in H2 either.
Commodities
In electronic trading on the New York Mercantile Exchange (Nymex), oil for November delivery is trading Monday at $80.69down 53 cents from Friday's close.
The spot price of gold in Sydney traded at $US741.28 per fine ounce, up $US5.28 from Friday's closing price of $US736.00 per fine ounce.
Gold spot price
In a column in Bloomberg last week, Michael R. Sesit, wrote that gold is a bad hedge and a questionable investment.
He says that gold reached a record high of $850 an ounce in January 1980. If since then the spot price of bullion kept pace with U.S. inflation as measured by the consumer-price index, gold would now be selling for $2,119.84.
Sesit says that history shows that since 1988, the correlation between bullion and US inflation expectations is just 36 percent, according to Goldman Sachs Group Inc. That means the price of gold rises and falls with inflation expectations 36 percent of the time. The relationship between gold and U.S. consumer-price inflation is less, at only 23 percent. And the metal's correlation with U.S. core inflation, which excludes food and energy costs, is even lower, at 7 percent.
Investors seeking protection from inflation would have been better off in the US stock market. On Jan. 30, 1980, the Standard & Poor's 500 Index stood at 115.20. Adjusting the index to compensate for the increase in the CPI since then would put it at 287.30 today. Yet on Oct. 3, the S&P 500 closed at 1539.59, more than five times the inflation-break-even level.
Sesit concludes: Bullion has also benefited from strong jewelry demand in emerging-market countries such as China and India; shrinking global mine production, especially in South Africa; reduced net central bank gold sales; and the growth of gold exchange-traded funds, which make it easy for individuals to invest in gold and which have $17.7 billion in assets, according to Morgan Stanley.
This shows that although gold may be a poor hedge, it isn't necessarily a lousy investment. ``It should be invested in for the right reasons,'' says James Gutman, a London-based commodity economist at Goldman Sachs International..
Nonetheless, bullion has no direct link to economic growth as do other commodities, doesn't earn a return, offers limited hedging advantages and hasn't kept pace with inflation. Moreover, the world's biggest holders of gold, major central banks, aren't overly eager to keep owning it.
© Copyright 2007 by Finfacts.com
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