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Weekly Analysis

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Cable faces negative sentiment

Mon, Mar 31 2008, 11:29 GMT
by Benny Menashe

Finotec Group Inc.

The financial markets were a little calmer last week as the dust settled in the US. Markets started the week positively with JP Morgan increasing its bid for Bear Stearns from $2 to $10 a share, and better than expected growth in US existing home sales. Although a free fall in housing prices led to a large decline in consumer confidence and the lowest since 1973.

US durable goods fell in February with benefits to exports from a weak US dollar could be overwhelmed by domestic debt disruptions. The dollar showed some recovery towards the end of the week on views liquidity conditions for banks were not as bad as initially thought. Analysts believe investors are pausing before buying the euro to all time highs. Stronger than expected jobless claims had no real effect on the dollar

The euro reached highs near 1.5861 while the cable struggles below the 2.00 level. Analysts are concerned about the dire housing market in the UK, which could mirror the struggle in the US, brought consumer confidence to its lowest levels since 1993. Japanese yen is flirting with the 100 mark after rebounding from 95.74 two weeks ago.

As the dollar fell, gold saw bargain buying following last week’s sharp correction. Gold gained $35, recovering more than a third of the previous weeks losses to be trading under $950 an ounce. Geopolitical concerns have supported oil prices as fighting between Shi’ite and Iraqi security forces continue in Basra. But the weak US dollar against rival currencies underpinned the long positions for crude.

Ahead this week we expect the drip feed of data from the US to support further interest rate cuts with ISM manufacturing and non-manufacturing composites to come in lower than expected. The Reserve Bank of Australia will leave rates unchanged while the Bank of England are expected to cut borrowing rates in the coming months.

Published on  Mon, Mar 31 2008, 11:30 GMT