Dollar up, gold down sharply: another week, another five days of readjustment as global recession fears grip investors.
But you’d be entitled to ask if the sharp rise in the value of the greenback and the sharp fall in gold were more examples of extreme movements in prices driven by thoughtless momentum as investors look for the easy gains: just as they were doing earlier this year by buying oil and selling equities, especially banks and financial stocks.
There’s no reason why the US dollar should be rising so rapidly against currencies it couldn’t hold a candle to a few weeks ago: no reason why gold should be sold off so sharply towards the end of last week.
But there’s probably every reason why oil prices should be easing, there is a slowdown in demand, caused by recession-like levels of demand from Europe, the US and Japan, and rising production.
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 a
