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Weekly Analysis

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Eye on Storm and Central Banks

Tue, Sep 2 2008, 06:04 GMT
by Benny Menashe

Finotec Group Inc.

This week we have some crucial data releases in the States and Europe that will impact the markets. Eyes will be on the European Central Bank and the Bank of England as they reveal whether they will change or keep rates on hold. We will finish the week with US nonfarm payrolls and employment figures. These results, and the growing threat of Hurricane Gustav, make this a potentially dynamic week in world markets.
The dollar strengthen last week on better than expected core durable goods orders and surprisingly strong preliminary GDP results. More support was given to the greenback on growing sentiment that poor economic growth will not only be confined to the US. However many will be eager to see whether the Dollars month long rally will be challenged by Gustav and US employment data. The dollar may struggle at the end of the week depending on key indications from Trichet, President of the ECB. Although analysts expect the interest rate in the euro zone to be held at 4.25%, Trichets comments afterwards will be instrumental in fuelling speculation concerning future rate movements.
Last week Sterling continued its sharp decline against all the majors, pushed down by new figures on falling house prices and a continued pessimistic outlook. Further downside was provided on Saturday as The Chancellor of the Exchequer stated the UK economy had hit the worst slump in 60 years. With the prediction of zero growth for the next year and inflation standing at 4.4%, there is little the BOE can do.
Expectations are that rates will remain unchanged at 5% but the question investors will be asking is whether Mervyn King will cut rates to stimulate a dwindling economy. If this happens this will add downward pressure to the pound.
Crude pushed higher after the sharp fall of the last month as the most severe storm since Hurricane Katrina threatens to halt oil and gas supplies in the Gulf of Mexico. Energy companies in the region closed and braced themselves for the worst. Offshore oil production is down by 96% and 8 refineries have been shut with the effect of a 1.56 million barrel a day reduction of output. If Gustav continues to halt production and worsen, Crude prices could soar.
Gold was pushed higher last week as the rising price of oil increased the metals attractiveness as a hedge against inflation. The precious metal is being support by rising consumer prices and the strong US currency. ‘Gold is still in a consolidatory phase and will continue to take cues from oil and the dollar,’ said the head of research at a futures company. If crude continues to rise, we will see significant upside for this precious metal.

Today's Economic Events

Published on  Tue, Sep 2 2008, 06:19 GMT