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February 26th, 2009, 10:20 am | By One Financial | Published in Daily Fundamental | Comments on this postComments Off

Global markets remain wary as they waver between optimism and pessimism.
For Europe’s opening, stock markets are likely to start higher, with
government debt prices testing supports. The euro is tentatively lower, with
oil up slightly and spot gold down.

STOCKS:
======
European share markets are seen higher Thursday, after bourses pulled back
from early gains to close lower again Wednesday, as losses from drugmakers
and utilities offset gains for banks.

Improved sentiment toward financials spread to Europe on Wednesday.

“Efforts are being taken by U.S., U.K. and other authorities to provide
insurance against loans, which they hope will encourage increased lending,”
said Darren Winder, head of macro and strategy research at Cazenove.

“The difficulty at the moment is that people generally have relatively
little confidence in whether these measures will work,” he noted. “There is
an air of skepticism around, and that is why we are seeing markets move
largish amounts on a daily basis.”

“I think it will be some considerable time before we know whether the
banking system has been stabilized to the point where lending growth has
resumed to the real economy and has resulted in rising levels of economic
activity.”

Concern about the U.S. banking sector persisted even though Federal Reserve
Chairman Ben Bernanke signaled in his testimony to Congress on Tuesday and
Wednesday that nationalization of major banks was off the table.

Bernanke said Wednesday that federal officials already have the tools on
hand to prop up banks that need additional capital, and again pushed back
the notion of nationalization.

U.S. stock futures are slightly higher Thursday, after markets closed lower
Wednesday in a volatile session, with the push and pull of Washington and
the credit markets driving a rally for banks such as JPMorgan and Bank of
America that faded late in the day.

For banking stocks, the rally came as U.S. officials unveiled details of how
the Treasury plans to convert preferred shares it holds in banks into common
stock. As credit spreads were largely unchanged on the plan’s details,
equity traders chose to move back into bank equity.

Asian shares are mixed Thursday with Japan’s exporters and the wider Nikkei
225 posting solid gains on the back of a weaker yen.

Trading updates and earnings reports from Australian companies largely met
reduced expectations, but still affirmed the sharp deterioration in
Australia’s business environment.

“I’m taking some heart in the fact the Dow did seem to find a level last
night,” says Southern Cross Equities director Charlie Aitken. “I may be a
few days early, but I feel a bear rally brewing in the U.S.”

Asian stock gains looked fragile at best though, with many seeing low
trading volumes. “Current gains don’t look strong and (the market) may fall
on profit-taking at any time,” said Mega Securities trader Stanley Chou.

FOREX:
======
The euro is regaining some of its earlier losses, while the yen has reversed
course from its overbought levels as fears mount over the health of the
Japanese economy. Dealers said short-term sentiment toward the euro seems
too bearish, but they also caution that the dollar stands to rebound
thereafter.

On Wednesday, the dollar reasserted its safe-haven status, rebounding
sharply against the euro and extending its recent rally against the yen to
reach fresh multi-month highs.

“The broad theme remains a move back into the dollar, the undisputed
safe-haven currency at the moment,” said senior currency strategist Matthew
Strauss of RBC Capital Markets in Toronto.

Strauss said continued market skepticism about the U.K. government’s ability
to turn around the problems in that country’s financial sector are likely to
continue weighing on the pound, potentially sending it back to its January
lows near $1.3500.

Meantime, the yen continued to wilt in response to mounting evidence of the
deterioration of Japan’s trade-dependent economy, although Wednesday’s
losses were of a smaller magnitude in comparison with selloffs earlier this
week.

BONDS:
=====
European government bond prices are seen lower Thursday. “Long- and
short-end interest rate futures remain likely to retrace lower on the back
of recovering equity markets Thursday,” according to Axel Rudolph, Dow Jones
Newswires technician.

Euro markets rebounded from early price losses to hover close to unchanged
Wednesday. Bunds recovered as concerns over further sovereign downgrades
fuels demand for safe-haven government debt. But gains saw caps ahead of
Thursday’s supply, when Italy sells around EUR4.5 billion new 3-year BTP and
taps around EUR3 billion of the 4.5% 2019 BTP.

But gilts remained confined to negative territory Wednesday as traders
prepared for the latest round of government bond issuance Thursday, when the
DMO conducts the inaugural GBP2.75 billion auction of the 4.0% 2022 UKT.
John Wraith, market strategist at RBC Capital Markets, said “fair value for
the bond is harder than usual to pin down.”

Treasury prices are mixed Thursday, after markets fell Wednesday even after
robust demand for the U.S. government’s $32-billion five-year note sale and
weak housing data.

Investors pushed bonds down before the final leg of this week’s $94-billion
government debt sales – Thursday’s $22 billion in seven-year note sales. It
will be the first seven-year note auction in 16 years.

Supply has been a rising concern this year for the market as the government
may need to sell more new bonds to fund its budget deficits and all the bank
bailouts and economic stimulus programs. President Barack Obama has signaled
that more funding is needed to aid the banking sector and the broader
economy.

Treasurys added to their losses in late trading, as shares of Bank of
America Corp. (BAC) and Citigroup Inc. (C) rebounded sharply, helping stock
indexes recover from early declines.

“The market is horrible in terms of prices,” said Charles Comiskey, head of
U.S. government bond trading in New York at HSBC Securities USA Inc.
“Generally more supply is coming up and the seven-year note is a different
animal.”

Concern has risen about the seven-year note auction because past auctions
have showed that the maturity isn’t well received by the market. But some
traders said that if yields continue to rise, it would entice bargain
hunters to bid in the auction Thursday, just as rising yields did for the
five-year note sale Wednesday.

The U.S. Treasury Department Wednesday launched a new program that would
provide capital injections into the nation’s 19 largest banks based on a
“stress test” conducted by financial institution regulators.

Japanese government bonds were a little higher. The market was being pulled
in two directions, caught between equity market gains and the gloomy
economic outlook. Royal Bank of Scotland strategist John Richards said that
“although profit-taking pressure is likely to increase as the fiscal
year-end approaches, it is unlikely to be strong enough to send yields to
break through the 1.35% (level).”

The Bank of Japan will keep taking steps to make financial conditions in
Japan accommodative, but too much meddling in the market may affect its
functioning, BOJ policy board member Tadao Noda said Thursday.

ENERGY:
=======
Oil prices are up Thursday, pushed up by a surprise drop in U.S. gasoline
reserves, dealers said.

New York’s main contract, light sweet crude for April delivery, gained 23
cents to $42.73 a barrel.

Brent North Sea crude for April delivery was up 21 cents to $44.50.

The unexpected drop in US gasoline supplies is the main factor behind the
jump in crude oil prices but this is likely to be short-lived, said Victor
Shum, a Singapore-based analyst with energy consultancy Purin and Gertz.

“It would be premature to say that oil now has turned the corner because the
weak economy remains a threat to the oil market, but the downward momentum
in oil pricing has been broken,” said Shum.

METALS:
======
Spot gold is slightly lower on stock markets making initial gains overnight,
but overall the tone is still firm given levels of uncertainty among
investors, said Investec head of trading Darren Heathcote. Spot gold is at
$951.65/oz, down 75 cents.

LME 3-month copper is seeing good buying interest this morning, at
$3,425/ton, up $25 since yesterday’s kerb with 1,279 lots done so far.
Copper rose 3.5% overnight. Possibly some arbitrage buying by China is
helping today, said a Singapore based LME trader.

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