The markets have recently received positive verbal attention, including actual measures proposed by Mr. Paulson. Here's what I've taken from the announcements.
I continue to expect the US dollar to continue to strengthen. This week might be a range bound market, but we can expect markets to go up another 400 to 500 points against the CHF coming weeks. For the Euro, 1.5520 is a crucial point and the next one being at 1.5280, against the dollar.
Now, all the comments and measures made to save the housing market and to boost the economy, in general, are welcome and give first signs that the US economy might avoid, comfortably, a similar 1929 disaster. That's good news for everyone.
- In addition to the dropping US market, the drop in UK and Japan is also likely to be severe because of a close relationship between these economies with that of the US. The UK and Japanese economies are heavy in US assets and over exposed to a drop in the value of such US assets. A 30 percent drop in the value of UK and Japanese assets from current value seems realistic to me.
- Eurozone is also going to be affected, but much less. The size of the market is big, it’s reasonably solvent and Europe’s exports are still strong despite the strong Euro. This is not to say that Eurozone will not get affected.
- US is under pressure to raise rates not only to contain inflation but also to stop outflow of capital to higher interest rate regions.
- Stock markets of emerging markets will be badly hit further as the uphill run was speculative. Hedge Funds were looking for new sources of profits and that drove up the stock markets in such countries including in India, where about 17.2 billion USD has been withdrawn so far. Approximately 56 billion USD was pumped in the BSE over the last few years. Hence not even 50 percent of the funds have been withdrawn so far. Fo me, 9000 on BSE seems realistic.
- The Feds have sent a strong signal to the markets. They seem serious on bailing out the troubled financial institutions. One has to wait and watch on this. Normally, markets do not respond positively when government institutions manipulate the markets. However, in this case the scenario is different as the global economy needs this intervention.
- I can see Mr. Paulson coming out with covered bonds as one way to ease the woes in the housing market, as well as extending government action in credit easing and increased regulation of financial institutions.
- I expect the złoty to weaken to about 2.30 against the USD as
stated earlier.
Do you have any questions or comments? You can direct those to my email at m.sharma@interglobalfb.com.pl
Disclaimer: Any opinions, news, research, analyses, prices, or other information provided by the author are provided as general market commentary, and do not constitute investment advice. Neither WBJ nor the author is liable for any loss or damages, including without limitation, any loss of profit which may arise directly or indirectly from use of or reliance on such information. Investors are advised to consult their broker before making a decision on buying or selling a particular security, product or currency pair. These articles are opinions and should be treated as such.
