Forex Markets


12/03/10 - 06:00

Overnight, US markets managed to move into positive territory late in the session. This was despite mixed economic reads, a fluctuating US dollar, and renewed concerns over further possible tightening in China after stronger-than-expected inflation data.

The S&P 500, NASDAQ and Dow Jones Industrial Average were all firmer by 0.4%, with the S&P 500 hitting a 17-month closing high.

In Asia, regional markets are mixed this Friday after reasonable, yet uninspiring leads from the US and amidst fresh concerns over further tightening of fiscal policy in China. At around 05:00, the Nikkei 225 is the best performer, up 0.6%. The Shanghai Composite and Kospi are flat, and the Hang Seng is 0.2% weaker.

At the risk of sounding like a broken record, the ASX 200 is once again trading in a flat, directionless manner. The market ended the session up 0.1% at 4818.10.

The market is seemingly treading water at the moment and just going through the motions. This feels like the two weeks leading into Christmas where investors’ attention was clearly elsewhere.

Despite the overall flat performance, there is some modest buying among energy and financial names. They are supporting the market but not enough for meaningful gains.

We’re witnessing a creeping trend here, with the market moving in small yet steady increments. Despite the ongoing presence of various macroeconomic issues, which saw the market retreat in February, investors are now shrugging these off, dismissing their potential impact. This is a very important change in underlying market psychology.

The fact that the S&P 500 closed at post global financial crisis highs went largely unnoticed is testament to this point. Traders are looking at this market and asking themselves: "Where did the last 100 points of gains come from?"

After yesterday’s down day in Europe, the late session rally on Wall Street looks set to reverse direction for stocks as we move into the weekend break. Certainly Asia has found some upside although fears of further attempts by China to reign in economic growth – and the threat of runaway inflation – have the potential to keep the upside in check in the near term.

In the hours ahead however, those US retail sales figures will be headlining on the economic calendar and could help extend the rally we’ve seen. Eurozone industrial production data will also be worth watching – there are still economic uncertainties here so some solid signs of recovery should bode well in general.

As is typical for a Friday, the earnings calendar is looking rather thin on the ground, but ahead of the open we’re calling the FTSE up 16 at 5633, the DAX up 23 at 5952 an the CAC up 10 at 3939.