European stocks set to rise; dollar struggles on Monday

Reuters, Monday 29 Aug 2011

European stocks are anticipated to trade in the green on Monday while the US dollar still struggles

European stocks were set to open up on Monday, in line with Asian shares which rose while the dollar struggled after Federal Reserve Chairman Ben Bernanke left the door open for further action to stimulate the US economy and fight unemployment.

An index of European stock futures was up 1.9 per cent and US stock futures rose 0.9 per cent after Hurricane Irene, downgraded to tropical storm status, spared the nation’s financial centre the worst.

London markets are closed on Monday for a bank holiday.

Bernanke gave no details of further action to boost the US recovery but said the central bank's policy panel would meet for two days next month instead of one to discuss additional monetary stimulus, offering some hope to investors.

Given the dysfunctional political climate on both sides of the Atlantic and the diminishing probability of viable longer-term fiscal policies, monetary policy is the only viable short-to-medium-term policy response, said Viktor Shvets, regional strategist at Samsung Securities in Hong Kong.

But following through with another round of bond buying will be harder this time around, some analysts say, citing rising core inflation in the US and a split regarding policy within the Fed as obstacles.

"He [Bernanke] has a much, much harder decision this time," said Jim Walker, founder of Asianomics and former chief economist at CLSA Asia-Pacific Markets, in a Reuters television interview.

"What he's got to do is convince the dissenting voices in the Fed and there now three of them that economic growth is so bad that it is time to use even more extraordinary measures," said Walker.

For now, though, the MSCI Asia Pacific ex-Japan, poised for its worst monthly return since October 2008, cheered any signs that more help from the Fed could be on its way.

The index rose 2.1 per cent led by cyclical sectors such as materials and energy. It is down 11.3 per cent so far this month as a US sovereign rating downgrade by Standard & Poor's and increasingly worrisome developments on the European debt situation spooked investors.

South Korea's KOSPI, the Asian market considered to be the most geared to a global economic recovery, jumped more than 3 per cent, and then cooled to be up 2.8 per cent.

In China, the Shanghai Composite fell 1.2 per cent, bucking the trend across Asia, as the latest move by the central bank to mop up excess liquidity and fight inflation hurt banking and property stocks.

Japan's Nikkei closed up 0.6 per cent on subdued volumes. Finance Minister Yoshihiko Noda will become the new prime minister after winning a leadership run-off vote in the ruling party.

"US jobs data is going to be much more important for setting the tone in the market, so people are looking at it for mid-term investment decisions," said Kazuhiro Takahashi, general manager at Daiwa Securities.

A Reuters poll showed economist forecast US non-farm payrolls rising 80,000 in August with unemployment staying at 9.1 per cent.


Stubbornly high unemployment coupled with the possibility of more monetary stimulus in the US kept the dollar under pressure in Asian trading.

The dollar index, a measure of its strength against a trade-weighted basket of currencies, stood at 73.572, having fallen from Friday's peak of 74.464. Against the yen, the greenback traded at 76.69 yen, recoiling from a recent high around 77.69.

The US currency, however, outperformed the Swiss franc, which came under broad pressure after Swiss bank UBS on Friday threatened to charge clients a fee on deposits, trying to discourage them from using some accounts to hoard the safe-haven currency because of financial market volatility.

In commodity markets, Brent crude fell below $111 on Monday as oil refiners and terminals along the US east coast weathered the worst of a tropical storm, easing fears of fuel supply disruptions in the world's top oil consumer.

NYMEX crude for October delivery was up 0.3 per cent.

Spot gold fell 0.3 per cent to $1,821.99 an ounce retreating slightly from an over 3 per cent rally in the previous session.

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