Rate Cuts Revive Markets
Pound Sterling - UK Markets
The widely anticipated Federal rate cut sent the Pound 3% higher against the Dollar overnight to open this morning at 1.6559. The Pound also gained just over 1 percent on the Euro, trading at 1.2566 despite recent data suggesting Sterling has reached a low point in its economic cycle.
Equity markets responded well to the rate cut, which were also made in Hong Kong, China and Norway and the MSCI Index gained 2.3% upon opening in London. This three day advance is the longest upward streak markets have experienced in 3 months.
In the UK this morning is the news that house prices slumped 14.6% or £30 000 pounds on average since October last year. Mortgage lending has increased and MPC member David Blanchflower has spoken out in criticism of his MPC colleagues for procrastinating on rate cuts and failing prevent economic downturn. The Bank is expected to follow the lead of the Fed and cut rates by 0.5% next week.
Shell has posted a 71% rise in profits this week; just days after BP announced an 83% rise in quarter 3 alone, prompting Darling to call for a reduction in prices at the pump for consumers.
There is no further data in the UK today, with the next major announcement being the October PMI Manufacturing on November 3.
US Dollar - US Markets
The US dollar declined overnight along with the Yen as risk aversion eased internationally. Equity markets strengthened following news of the 0.5% base rate cut and Bernanke's accompanying speech suggested the Fed will keep a hawkish eye on rates, continuing to slash them to 0% if necessary to revive global credit.
Equity markets strengthened internationally, assisted also by the news that the Fed Reserve will provide $120 billion to South Korea, Brazil, Singapore and Mexico for finance. The US Treasury and FDIC are also reported to be considering a $500 billion plan to guarantee mortgages and prevent foreclosures in the US, which have reached the highest levels on record in the US this quarter.
Oil has increased to $67 a barrel in the light of improved growth prospects in the US economy.
The US Dollar is likely to face further volatility this week with GDP data out today and personal consumption, income and spending data due tomorrow
Euro - European Markets
The Euro weakened overnight, in correlation with the US Dollar following the news of interest rate cuts.
In the Eurozone, Deutsche Bank announced a surprise profit in quarter 3, enabled by new accounting rules which limit write downs from banks and the German economy showed resilience as unemployment declined for the fifth consecutive month in October.
The European Investment Bank is to make £4 billion worth of loans available for small and medium sized businesses in the UK and Hungary has been granted a £15 billion dollar bail out by the World Bank, IMF and EU. This is the first time an EU member state has received assistance from the IMF, underpinning the importance of the Maastricht criteria for the stability of the Euro.
EMU consumer, economic and industrial confidence data is due today