Monday May 17, 2004 - 11:37:07 GMT
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GVI-- FX Strategy Session-- NY Open
Normally, Monday is a more cautious session for forex trade, but activity is off to a robust start today. Bombings in Turkey ahead of the visit of PM Blair have unsettled the markets, and the death of the rotating head of the Iraqi Governing Council Izzadine Salim by a car bomb near a U.S. checkpoint in central Baghdad has disrupted equities. There are ongoing concerns about the high price of oil and short global supplies. Any political unrest in the region is a cause for worry in the markets. Oil prices and gold are higher.
Another cause for malaise has been the fall of the India's stock market, which recorded its biggest single-day fall ever Monday, as investors panicked about the economic policies of the incoming communist-supported government of Sonia Gandhi. The benchmark index of the Bombay Stock Exchange, the Sensex, opened sharply lower and tumbled further in a 10.9% drop, before trading was suspended for an hour. The National Stock Exchange, the country's largest, plunged 11.5%.
In Japan the Nikkei tumbled as well by 345 points, as worry about the fate of PM Koizumi hangs in the balance as a scandal about him not making contributions to his government pension plan for seven years remains on the boil. One item of note is that some of the overseas investments in both the Indian and Japanese stock exchanges are leveraged and thus prone to move very quickly on sharp price movements. Nevertheless, worry about the impact of the various strands of dollar uncertainty has provided the yen with a lift. Oftentimes the yen also has reacted poorly to rising oil prices given the dependence of Japan on oil imports. On the positive side, the 1Q04 flash GDP estimate is due on Tuesday. The quarterly growth rate is estimated at about 0.9% or +3.7% annualized by one survey of economists.
The dollar is not handling all this political uncertainty well on Monday. From the headlines, Iraq appears to have become a quagmire and the approval ratings of President Bush are falling fast. The June 30 hand over of power to Iraqis is the important date to watch to see if the U.S. can start to extricate itself from this mess. The various warring factions in Iraq will be doing all they can in the next month and a half to make that hand over of power more difficult.
This is a relatively quit week on the data front from the U.S. Today sees the Empire State PMI data on the open and then the closely watched tic data comes out at 13:00 GMT. Expect U.S. equity markets to react cautiously to the weakness in stocks overseas.
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