A balancing act (ISFM) (09-06-2011)

The decline in world stock markets continued today on expectations that the European Central Bank may hike interest rates soon to ward off inflation; although this did not happen today, the indication from the ECB was that this would happen next month. In the US, further economic slowdown was apparent from a Federal Reserve report.

Earlier this morning, Asian shares closed mostly after the Federal Reserve report overnight. Japan's Nikkei 225, South Korea's Kospi, and Hong Kong's Hang Seng were mostly flat with minimal movement from neutral. Big movers included TEPCO in Japan, which tumbled again after its all time low the day before, as a government investigation was launched into the disaster following March’s earthquake and tsunami. Most stock exchange losses were focused on mainland China as investors sold off U.S. dollar- and Hong Kong dollar-denominated B shares in expectations that the planned launch of an international share board might constrain liquidity.

Meanwhile, oil prices jumped to above $101 per barrel after left its production levels unchanged. Among currencies, the dollar strengthened against the yen but slipped against the euro.

European stock markets turned lower in late-morning trade on Thursday, with the banking sector driving declines as markets were awaiting BoE and ECB rate decisions. Both Central Banks left rates unchanged, but the ECB indicated that this may change next month. Markets breathed a sigh of relief for now. A rate hike is not going to help countries with big sovereign debt problems, Greece in particular.

Back on Wall Street, US stocks opened mostly higher, recovering after several days of losses, as investors put initial jobless claim numbers to one side, rejoicing instead on a report showing the U.S. trade gap narrowed in April.

Source: ISFM