Daily Market Report 01/12/11
World markets leapt yesterday after the Fed announced its intention to pump the world economy with cheap dollars in an attempt to avert an impending credit crunch by offering the swap line to major central banks. The announcement of the coordinated central bank liquidity support lines sent stock indices in Europe and the US soaring, with Dow Jones index posting its biggest daily performance since March 2009, the DAX jumping about 4% and the S&P climbing 3.6% on Wednesday, confirming that markets love nothing more than seeing joint central bank actions. The UK stocks rose, for the biggest three-day rally in the benchmark FTSE 100 Index. This morning European stocks gave back some of the strong gains of the previous sessions as investors are waiting for further guidance form policymakers in regard to the euro zone debt crisis. Liquidity will certainly buy Europe more time to wrestle with its debts but it cannot address the fundamental problems that are threatening the survival of the euro zone and as with any big spike, the same questions always seem to emerge. Is this just a one-day thing?
In the currency market, the greenback fell against all four component currencies on Wednesday, with the aussie posting the largest three day rally in three years with a advance of 3.8% this week alone and the Japanese yen being the worst performer as investors were seen dumping lower yielding assets in favour of risk. The single currency increased almost 280 pips to 1.3534 against the US Dollar yesterday. Today the single currency is trading quietly with movements at the upper end of yesterday’s range for now. Although the sterling is still affected by the Chancellor of the Exchequer announcement the cable is trading up at 1.5685 after giving up some of yesterday’s gains.
Today’s economic docket is highlighted by releases from the US economy, with the initial jobless claims for the week ending November 26 and continuing claims for the week ending November 18 available at 13:30 GMT. Investors will be also eying the ISM manufacturing for November, which is expected to show a widening expansion to 51.5 compared with October’s reading of 50.8.