Major indices rebound and gold hits high

MARKETS WRAP:EUROPEAN MARKETS benefited from a "relief rally" yesterday, as indices opened up relatively strongly following last week's steep sell-off.

In the US stocks rebounded from the biggest four-week decline since 2009 amidst expectations that a new market stimulus will be forthcoming at Friday’s meeting of the Federal Reserve.

However, gold hit a new high on the back of global growth concerns, with figures from the OECD pointing to a slowdown in the leading economies.

Across Europe markets made some effort to reverse last week’s losses. In Dublin the Iseq climbed by almost 1 per cent, buoyed by a strong set of results from Kingspan, but failed to get back above 2,500 points. In London the FTSE 100 advanced by 1 per cent, while in Paris the CAC 40 was up by 1.3 per cent. However, in Frankfurt the DAX was flat.

Oil stocks rose on the back of hopes that a new political regime in Libya will help restore oil production to former levels. Italy’s ENI rose by 6.3 per cent, while France’s Total was up by 2.3 per cent despite the fact that Brent crude oil declined, down by more than $1 to $107 a barrel.

However, the rally is likely to only give a brief respite depending on the outcome of Friday’s central bank symposium at Jackson Hole, Wyoming, at which chairman of the US Federal Reserve Ben Bernanke is to give a presentation.

“It means we’ll spend much of this week with markets sitting on their hands,” said Austin Hughes, chief economist with KBC Bank.

Last year Mr Bernanke gave a clear indication of his intention to introduce further market stimulus through a second round of quantitative easing (QE2), but it is not yet clear whether he will do likewise this year with QE3 – and what impact this might have on the market.

“It would be a major shock for the market if there was a huge disappointment on Friday,” Mr Hughes said.

Meanwhile economic growth remains muted. According to figures released yesterday from the OECD, the world’s leading economies grew by just 0.2 per cent in the second quarter of the year. This is the fourth consecutive quarter that growth has slowed.

The slowdown was particularly marked in the EU, where growth slowed to 0.2 per cent compared to 0.8 per cent in the first quarter of the year. Germany fell to 0.3 per cent, while France experienced no growth, and the UK slowed to 0.2 per cent from 0.5 per cent. Japan also contracted, to 0.3 per cent, but the US was up to 0.3 per cent from 0.1 per cent.

Against this background gold hit a new high yesterday, almost reaching $1,900 at $1,894.80 an ounce.

The euro fell by 0.2 per cent against the dollar yesterday to $1.4374. The Swiss franc was also weak, falling against most of its counterparts on speculation that the central bank will intervene to stem its growth. – (Additional reporting Bloomberg/Reuters)