The US dollar posted a fifth weekly gain against the euro, its longest winning streak in more than two years, as crude oil prices fell, the European and Japanese economies contracted and Britain seemed to hover on the edge. Sterling fell against the dollar for the eleventh day in a row Friday, its longest consecutive decline since 1975.
The pound hit a more than two-year low of $US1.8514 – a level not seen since July 2006 as the seismic shift in currency markets continued. The Australian dollar finished at 86.60 US cents in new York, up from its local close Friday of 86.39, despite a further rise in the greenback and another easy night for gold and oil. The US currency rose to its highest level in almost six months against the euro and a seven-month high against the yen.
The Dow rose 43.97 points or 0.38% to 11,659.90, but eased 0.6% for the week. The Standard & Poor's 500 Index gained 5.27 points or 0.41% Friday and was up 0.1% over the week, while Nasdaq eased 1.15 points to 2,452.52 on Friday and rose 1.6% over the week. The S&P 500 is off nearly 12% in 2008, safely out of the bear zone of a 20% fall it was in June.
But we saw this sort of recovery from Mid-March to Mid-May, and then the enormous plunge as fears built up about the financial health of Fannie Mae and Freddie Mac. They are now on US Government 'moral' support, just as the entire banking system is sucking $US17.7 billion a day from the Fed (and rolling over a further $US150 billion in short terms debt).
While the greenback rose 2.1% against the euro last week in its longest stretch of weekly gains since February 2006, some commentators are wondering if it will now plateau because its around 'fair value' at just over $US1.47 to the euro. And further rises would see the currency start to overshoot and build up tensions for a rapid retracement. The Euro fell 2% against the yen. The pound lost 3% against the US dollar, which ended up 3% against the Aussie dollar.
The Aussie's loss since a 25-year high a month ago is now 12%. And that's the story of global markets at the moment: the US is the safe haven, housing crisis, credit crunch and all.
Asian stockmarkets remain nervous about this changing emphasis: they fell for a third week, driving the region's main index to a two-year low, after growth slowed in Japan in the second quarter, and China's economy looked peaky.
The MSCI Asia Pacific Index lost 1.8% to 124.84 last Friday, the lowest since August 2006. It's dropped 21% so far this year, with weakness in the Japanese, Chinese, Hong Kong and Australian markets the main drivers. Japan's Nikkei Index dropped 1.1% last week, The Australian market was steady and China's CSI 300 Index (which tracks A shares on the two main exchanges in Shenzhen and Shanghai shed 5.6%, the region's biggest loss. Indexes in most countries eased over the week.
China's stocks rose Friday, but it's clear the Olympic Games have provided no fillip whatsoever to market sentiment. The CSI 300 index has plunged 54% so far this year percent this year, the most among 88 global measures tracked by Bloomberg. In Tokyo a big factor behind the weakness was the bankruptcy of a property developer called Urban, which fell over owning $US2.4 billion.
It joined builders Zephyr Co. and Kyoei Sangyo Co. that went bankrupt last month and it seems Japan is having its own housing and construction recession: this one though caused by a combination of changes to government rules which toughened earthquake standards (they were found to have been ignored in recent years) and slowing demand from consumers for new homes as the economy slowed and soaring oil and food prices cut spending. The Australian share market is tipped to open flat to slightly weaker today on the back of the sharp fall in commodity prices, led by gold and oil.
The futures market has an 8 point fall penciled in for the ASX 200 after it finished flat in Australia on Friday. The ASX200 index was up 0.6 of a point to 4,981.7, while the All Ords lost 0.1 of a point to 5,038.9. A rally in financial shares (except for Babcock & Brown) offset selling in gold, oil and other resource shares.
Ahead of its profit later today, BHP Billiton fell 72 cents to $37.98, while its rival, Rio Tinto fell $2.80 to $115.15. Woodside Petroleum lost $1.37 to $54.20, Santos 19 cents to $17.72 and Oil Search slipped two cents to $4.93. (All three will produce interim figures this week or next). Gold finished at $US789.85, down a very sharp $US43.05 from Thursday night's Sydney close of $US832.90. It finished at $US792.10 in New York, down $US22 on Thursday's New York close.
Newcrest Mining dropped 62 cents to $24.43, Newmont 14 cents to $4.89 and Lihir Gold dropped seven cents to $2.26. The Commonwealth Bank added 20 cents to $43.70, Westpac Banking Corporation rose 31 cents to $22.80 and ANZ added 18 cents to $16.90. National Australia Bank though fell 15 cents to $25.05 One of the day's biggest losers was troubled investment house Babcock & Brown, which plunged 55 cents, or 11 per cent, to $4.45.
The AMP's Dr Shane Oliver said in his weekly comment that shares still seem to be trying to grind higher after the panic falls into mid July and further gains are likely into mid-September. "This may just be another bear market bounce though and we still see the next few months as being quite rough with the prospect of more weakness in late September/October as the global economic downturn feeds into more profit downgrades, particularly for cyclical sectors.
"Although the picture for the next few months is rather messy, we continue to see shares putting in a good rally through the normally strong December quarter. Some of the pre-conditions for a sustained recovery in shares are starting to fall into place. The oil price is down substantially from its high. "This in turn should help to reduce inflation worries and along with weakening economic activity help clear the way for lower interest rates globally and locally. "There are some tentative signs that the US housing market is close to bottoming and finally shares are very cheap. This all suggests good returns from shares on a one year view, even though the next few months remain uncertain.
" While Australian industrial shares will benefit from the shift towards lower interest rates and the sharp fall in the $A, resources shares are likely to remain under pressure over the next few months and this will likely result in the Australian share market underperforming global shares for a few months. Asian shares should be key beneficiaries of lower commodity prices though." "The Australian dollar is oversold after its sharp fall from $US0.9850 in mid July and therefore has the potential for a bounce.
"However, the cycle has turned and the combination of falls in Australian interest rates and a correction in commodity prices suggests that the $A likely has more downside ahead of it over the next six months or so, possibly taking it back to around $US0.80.
"The long term trend in the $A is likely to remain up though in response to the long term rising trend in commodity prices, so it is likely to just be a case of parity versus the $US postponed rather than put off forever," Dr Oliver wrote.
