Again, it was the Franco-German team that everybody is looking to for answers, and they came back pretty defiantly too.
French President Sarkozy has said that by the beginning of November, they will know exactly what needs to be done to tackle the three big eurozone issues at the moment; prevent a Greek default, recapitalise banks, and fix Europe’s economic governance. Although Sarkozy and German Chancellor Merkel claimed they couldn’t give exact details of how they aim to resolve the above, it seems that things are going in the right direction, and they are at least, in agreement with each other.
Whilst on the topic of banks, the Belgian/French lender Dexia, who suspended their shares last week is to split into a “good” and “bad” bank. The Belgian and French governments will take on the responsibility of the “bad” bank’s losses, but it will be supported by state guarantees such as €95bn in bonds and other eurozone nations’ sovereign debt.
Despite the better than expected non-farm payroll data released on Friday, the UK blue chip index only managed to gain 12 points from the open and ended up closing the session at 5303. After heavy losses on Monday and Tuesday, investors began to shrug off doubts over the stability of the global economy, and helped the FTSE 100 gain 3.6 per cent on the week, taking Friday’s downgrades on both Spain and Italy’s credit ratings with a pinch of salt.
With the US Columbus Day Holiday (Government offices and Bond markets are closed for those scratching their heads at this) and no British economic data due for release on Monday, investors will look ahead to Wednesday’s British unemployment figures and the US September 20-21 FOMC meeting minutes.
FX traders have taken positively to the Franco-German meeting regarding recapitalising banks and the Greek rescue, and the dollar and yen have taken the brunt of it this morning. The euro is having a tasty 150 pip rally versus the dollar, and now trading at 1.3538. Let’s not forget Fitch’s downgrade of Italy and Spain’s credit rating, which is obviously a negative factor to be taken into account. However, there is finally some indication coming from eurozone leaders and at least short term, the euro will enjoy this bear squeeze.
Gold was clinging on to the back of world markets on Friday, as optimism took over once the non-farm payroll data had been released, showing a better than expected figure. The soon after downgrade on Spain and Italy’s credit rating knocked the precious metals grip though and sent it plummeting, finally hitting the ground at 1637.6, after losing 11.8 dollars. At time of writing, the yellow brick has clawed back Fridays losses, and is trading up at 1659.8.
The much needed improvement of 103,000 jobs in the labour market helped crude traders forget about the double downgrade in Europe, and offered some consolation that things might be getting better. Black gold finished the day up at 105.68, and considering the stronger greenback against the euro and the slight decline in US equities, this was a pretty good result. Currently, brent crude is continuing its rally, trading at 106.46.