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*** China revalues...so what do forex traders do?
*** High Street spending surprises
*** What happens if Bush cuts the fiscal deficit?...the looming deflationary forces...what next for the FTSE?...and more..
--------------------- – The City’s touch of turmoil yesterday failed to impact on the market. The pretty volatile blue chip index shed some 60 points as news of the mimic-attacks on London’s underground and on a City bus filtered through. Yet by London’s close, the index traded 6 points in the black to close at 5,221. The mid-cap 250 index also traded 0.4% up, at 7,467.
– The biggest market gainer on Thursday? That would be plasterboard maker BPB, as its share price soared 26% on the news that French rival Saint-Gobain is taking a closer look. Although BPB had received no formal bid by London’s close, the French confirmed that they are considering their “strategic options in respect of BPB”. The UK group’s share price traded 136p up at 648p.
– “BPB is another big deal in the FTSE illustrating that, in relative terms, value remains there for overseas companies looking to the UK,” Investec’s Roger Cursley said yesterday.
– The mining sector helped buoy the blue chip index yesterday, up some 2% as China stunned all – most notably probably US treasury secretary John Snow – by revaluing its yuan – which has been pegged to the dollar for 10 years. Miner Anglo American closed 3% in the black, while BHP Billiton traded over 1% up. The yuan revaluation may be gradual, at 2.1%...but paves the way for further rises if the peg were to be completely abandoned. According to the People’s Bank of China, any bigger revaluation would harm the Chinese economy.
– So how do foreign exchange traders make the most of the de-pegging of the yuan? Well, the yen traded some 2% up versus the dollar at Y193.19, and more than 2% up versus the euro at Y133.84. And the yen could strengthen even further if more Asian countries follow in China’s footsteps.
– Also in the forex markets, the pound – unaffected by the news of the blasts – traded 0.7% stronger versus the dollar and the euro, at $1.753 and 1.441 euro respectively.
– Meantime, retail spending on the ailing High Street surprised by growing at its fastest pace for 18 months in June, said the Office for National Statistics. Sales rose 1.3% last month, which pushed annual growth to 1.6%, from 1.3% in May. The news pushed the general retail sector up 0.6% - with Kingfisher up 2%, and GUS up 1%
-------------------- Be Careful What You Wish For– The Bush administration has called for a “dramatic cut” in the fiscal deficit, says the Absolute Return Letter Team. Yet they should perhaps be careful what they wish for. Why? GDP growth will decline if fiscal deficit improves...unless the balance of payments deficits shrinks at the same time, or private savings declines. The result? If nothing is done, such a cut could lead to a “severe recession”.
The Winning Forces of Deflation– The deflationary forces continue to rule, both here in the UK and in the US, says RH Asset Management group. How do we know that? Well, as a class, bonds have been the “most successful investments” to hold for a number of years now – which wouldn’t have been the case if the risk was inflation. And here in the UK, inflation has not transferred to higher output prices. The result? Well, just about everything is set to fall...
FTSE Rides Out Tough Times– The FTSE’s surge in the face of so many negatives in the UK economy is a bit of an anomaly. Or is it? It seems that the market is currently rising not because there’s anything good to say about the UK economy, but because there are “so many negative things” to say about it, we note in the latest MoneyWeek. As a result, analysts are all expecting interest rates to fall, which would really buoy equities. But what if Bank of England governor Mervyn King gets his way and rates aren’t cut?
Published in Stock-Markets
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Heather D'Alton
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