Not a very good start for the equities market. S&P 500 tumbled 4.52% for the week to close at 1411.63 while Nikkei Index shedded more than 600 points on its first trading day of 2008. Meanwhile, Asian equities market held up relatively well led by commodity shares after oil and gold powered through the roof despite heightened concerns of a US recession. Oil reached $100.09 per barrel on Thursday while gold climbed above $860/oz.
In the US, the December ISM Manufacturing Index showed a relatively large one-month drop, falling from 50.8 in November to below the neutral 50 reading at 47.7 in December, suggesting signs that business conditions have already deteriorated. NFP release showed that only 18,000 jobs were created in December versus 115,000 in the previous month while unemployment rate climbed to 5.0% from 4.8% in November. No signs of a bottom yet in the economy.
In the forex market, the spotlight is on the dollar, albeit not positively. Dollar was being sold off across the board with the major gainers being CHF and JPY as risk aversion stepped in. On Saturday, European Central Bank President Trichet has again retained its hawkish stance in fighting inflation, while indicating that financial market tension is receding. This is likely to give EURUSD another solid boost. On the other hand, market is mixed on the chances of another BoE rate cut on Thursday as the recent sharp fall in Cable and skyrocketing oil price are likely to keep inflation at worrying levels. As we are also having Cable at critical support level, I do not discount the possibility of a sharp but short rebound if the BoE decides to put rates on hold. Any sharp rebound can then be seen as a further opportunity to short GBP vs USD or long EUR vs GBP. The latter is my preferable choice.
Going into next week, I am more negative on the JPY and CHF seeing their recent gains and the fact that the S&P 500 is currently testing its critical support area.
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