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| Taylor Rafferty Capital Markets SmartBrief |
| November 5, 2009 |
Commodities provide haven against dollar weakness, driving physical response to price breakout
The recent breakout of oil prices over the $75/bbl level last week, which had formed a firm upper bound support for the last five months, has caught many market observers by surprise. The fundamentals in the physical oil market, still suffering from historically high amounts of inventory and tepid demand growth despite the general economic recovery, seem unable to explain such a strong price rally. This anomaly has led many analysts to point to financial factors, particularly investor capital flows hungry for exposure to real assets as a hedge against nominal inflation and continued dollar weakness.
Gold nears $1,090/oz as dollar slide continues
Gold prices were up 3.8% for the month of October, which is traditionally a weak month for gold. Many analysts say they believe this is a bullish sign and thus should feed the price rally further into the seasonally stronger months of November and December. In a related story, the Indian central bank has sold $6.7 billion in foreign reserves for gold in a move that signals yet another blow to the confidence in the U.S. dollar. Traders remarked that this purchase could mark the end of the anti-gold sentiment that has been prevalent in the market. MarketWatch (11/2), The Financial Times (tiered subscription model) (11/4)
What to think of strong Q3 U.S. GDP figures
Markets roared forward with vengeance on Thursday, Oct. 29, after positive third-quarter U.S. GDP figures were released. Despite the earlier sell-offs, risky assets such as equities greeted news of a 3.5% annualized growth in GDP as the beginning of a boom that will restore our once vibrant economy. However, after further examination, the GDP number was insignificantly better than the 3.3% consensus forecast; mainly because 92% of its growth came from nonrecurring factors that are not sustainable. For that reason, putting much stock in the release could be shortsighted. Barron's (10/30)
European regulators get tough and take action
European regulators pressured by the European Commission took a bold step toward intervention by ordering ING Group to sell its insurance and Internet banking business in the U.S. The U.K. authorities also pressured RBS and Lloyds to dispose of assets in a bid to help spur competition among U.K. financial institutions. Many analysts already see a drastic reshaping coming, and markets should expect more as taxpayers around the developed world demand action. The New York Times (10/27), The New York Times (11/4)
PwC Manufacturing Barometer survey shows renewed optimism in U.S., global economies
In the most recent edition of the PricewaterhouseCoopers Manufacturing Barometer, U.S.-based industrial manufacturers surveyed expressed optimism about future global economic prospects and many believe a turnaround is expected over the next year. In contrast to the prior four quarters, fewer industrial manufacturers are taking the view that the economy is in a continued decline, only 23% of respondents believe that the U.S. economy declined this quarter. Respondents from the Industrials sector planning for M&A activity over the next year also rose sharply to 38%, with the focus primarily on the intent to purchase horizontally. "The upswing of optimism regarding the economy reflects an important shift in perspective and growing confidence by manufacturing executives at both a U.S. and global level," said Barry Misthal, partner and industrial manufacturing sector leader at PricewaterhouseCoopers. Read the study.
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