LexisNexis(TM) Academic - Document
LexisNexis(TM) Academic - DocumentCopyright 2005 The Financial Times Limited
Financial Times (London, England)
July 23, 2005 Saturday
USA Edition 2
SECTION: FT MONEY - MARKETS WEEK; Pg. 11
LENGTH: 641 words
HEADLINE: Renminbi revaluation just 'first small step' GLOBAL OVERVIEW
BYLINE: By DAVE SHELLOCK
BODY:
Currencies were the focus for financial markets this week as investors digested news that China was revaluing the renminbi and the latest words of wisdom from Alan Greenspan, the Federal Reserve chairman.
By contrast, equities were little moved over the week with markets for the most part brushing aside another series of terrorist incidents in London.
China announced it was revaluing the renminbi by 2.1 per cent against the dollar and said it would replace its peg to the US unit with a basket of currencies.
The move was given a mixed response by analysts.
"We view this as a positive event for the global economy and for equity markets and one that reinforces our bullish cyclical calls across the region on the back of improving global industrial activity," said Goldman Sachs.
But Steve Barrow, currency economist at Bear Stearns, said the move was very much in line with expectations.
"In this regard, it is not a big deal," he said. "It is more like the first small step on the long path to significant renminbi appreciation.
"The main conclusion as far as we are concerned is that, if the US wants this change to result in a lower dollar/renminbi, it will have to accept, or even encourage, a weaker dollar against other major currencies such as the euro and yen."
The greenback duly tumbled against the yen before staging a modest recovery yesterday. The yen made strong gains against sterling and the euro.
Analysts said the yen would benefit from expectations that a strong renminbi would prompt other Asian countries to allow their
currencies to appreciate, boosting Japanese competitiveness.
US Treasury bonds also suffered a sharp sell-off following the news from Beijing, with analysts suggesting the revaluation could weigh on Chinese purchases of US bonds.
The yield on the 10-year Treasury bond drifted back yesterday but was still up sharply from levels seen at the start of the week.
Bond yields were also pushed up by the other big market event of the week - Mr Greenspan's midweek testimony on monetary policy to Congress.
He gave an upbeat assessment of the US economy and confirmed that, as expected, interest rates would continue to be raised to keep inflation at bay.
The question of how high the US central bank raises borrowing costs is one of the uncertainties facing the market, particularly with increasingly robust US house prices fuelling consumer spending.
Ian Harwood, global head of economics and strategy at Dresdner Kleinwort Wasserstein, believes it is very unlikely that rates will be raised specifically to deflate home prices.
"The Fed didn't act thus vis-a-vis the late 1990s equity bubble and, crucially, subsequently argued it was right to behave as it did," he said.
"Fed officials, moreover, continue to deny the existence of a housing bubble, though, interestingly, they are now talking in terms of 'froth'."
World equity markets put in mixed performances. Wall Street was little changed over the week as the quarterly US reporting season got into full swing. At the close yesterday, the Dow Jones Industrial Average was up 0.2 per cent while the S&P 500 was up by the same percentage.
The Nasdaq Composite index inched up 0.1 per cent following positive earnings news from the technology bellwether IBM.
European stocks touched a three-year high on Tuesday but subsequently retreated to end the week virtually unchanged.
In Asia, Tokyo's Nikkei 225 Average slipped 0.5 per cent. Car stocks fell back sharply yesterday following the renminbi's revaluation.
Elsewhere in the region, Australian and Indonesian shares hit record highs, while Singapore was boosted by a loosening of restrictions on property lending.
Oil prices fell steadily through the week before staging a modest rebound yesterday.
Another large build in US distillate inventories plus a weakening of Hurricane Emily were behind the drop in crude prices.
LOAD-DATE: July 22, 2005
Financial Times (London, England)
July 23, 2005 Saturday
USA Edition 2
SECTION: FT MONEY - MARKETS WEEK; Pg. 11
LENGTH: 641 words
HEADLINE: Renminbi revaluation just 'first small step' GLOBAL OVERVIEW
BYLINE: By DAVE SHELLOCK
BODY:
Currencies were the focus for financial markets this week as investors digested news that China was revaluing the renminbi and the latest words of wisdom from Alan Greenspan, the Federal Reserve chairman.
By contrast, equities were little moved over the week with markets for the most part brushing aside another series of terrorist incidents in London.
China announced it was revaluing the renminbi by 2.1 per cent against the dollar and said it would replace its peg to the US unit with a basket of currencies.
The move was given a mixed response by analysts.
"We view this as a positive event for the global economy and for equity markets and one that reinforces our bullish cyclical calls across the region on the back of improving global industrial activity," said Goldman Sachs.
But Steve Barrow, currency economist at Bear Stearns, said the move was very much in line with expectations.
"In this regard, it is not a big deal," he said. "It is more like the first small step on the long path to significant renminbi appreciation.
"The main conclusion as far as we are concerned is that, if the US wants this change to result in a lower dollar/renminbi, it will have to accept, or even encourage, a weaker dollar against other major currencies such as the euro and yen."
The greenback duly tumbled against the yen before staging a modest recovery yesterday. The yen made strong gains against sterling and the euro.
Analysts said the yen would benefit from expectations that a strong renminbi would prompt other Asian countries to allow their
currencies to appreciate, boosting Japanese competitiveness.
US Treasury bonds also suffered a sharp sell-off following the news from Beijing, with analysts suggesting the revaluation could weigh on Chinese purchases of US bonds.
The yield on the 10-year Treasury bond drifted back yesterday but was still up sharply from levels seen at the start of the week.
Bond yields were also pushed up by the other big market event of the week - Mr Greenspan's midweek testimony on monetary policy to Congress.
He gave an upbeat assessment of the US economy and confirmed that, as expected, interest rates would continue to be raised to keep inflation at bay.
The question of how high the US central bank raises borrowing costs is one of the uncertainties facing the market, particularly with increasingly robust US house prices fuelling consumer spending.
Ian Harwood, global head of economics and strategy at Dresdner Kleinwort Wasserstein, believes it is very unlikely that rates will be raised specifically to deflate home prices.
"The Fed didn't act thus vis-a-vis the late 1990s equity bubble and, crucially, subsequently argued it was right to behave as it did," he said.
"Fed officials, moreover, continue to deny the existence of a housing bubble, though, interestingly, they are now talking in terms of 'froth'."
World equity markets put in mixed performances. Wall Street was little changed over the week as the quarterly US reporting season got into full swing. At the close yesterday, the Dow Jones Industrial Average was up 0.2 per cent while the S&P 500 was up by the same percentage.
The Nasdaq Composite index inched up 0.1 per cent following positive earnings news from the technology bellwether IBM.
European stocks touched a three-year high on Tuesday but subsequently retreated to end the week virtually unchanged.
In Asia, Tokyo's Nikkei 225 Average slipped 0.5 per cent. Car stocks fell back sharply yesterday following the renminbi's revaluation.
Elsewhere in the region, Australian and Indonesian shares hit record highs, while Singapore was boosted by a loosening of restrictions on property lending.
Oil prices fell steadily through the week before staging a modest rebound yesterday.
Another large build in US distillate inventories plus a weakening of Hurricane Emily were behind the drop in crude prices.
LOAD-DATE: July 22, 2005
posted by Eastlaw at 12:55 AM
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