London blasts shake markets

Financial futures, as well as oil prices, fell amid market uncertainty caused by explosions during London's morning rush hour.

Stock futures and oil prices fell after reports of several subway and bus explosions in London.

The FTSE 100 initially fell over 200 points, the Dow Jones futures plummeted 181 points, Nasdaq futures dropped 34 points, and S&P futures fell 7 points. Meanwhile, crude oil prices which, for the first time, peaked just above $62 a barrel earlier today, dropped sharply amid market uncertainties spawned by the explosions in the capital city.

Indeed, on the New York Mercantile Exchange, light sweet crude for August delivery tumbled $1.88 to $59.40 a barrel in electronic trading by midday in Europe. Heating oil prices fell to $1.7467 a gallon, about a 5 cent drop, and unleaded gasoline sunk by more than 4 cents to $1.7455.

News reports indicate that the blasts, which ripped through sections of the London subway system and a double-decker bus, were nearly simultaneous and occurred during the morning rush hour.

Injuries and fatalities were reported by police and several news organizations, however the extent of those casualties are still unknown. London city officials shut down the entire Underground train system.

The explosions came a day after the International Olympic Committee announced that London would be the host city of the 2012 games, and as the G-8 summit in Scotland was commencing.

In the corporate sector, insurance and travel stocks fell precipitously, and the British pound sank. In London, the hotel group Hilton sunk 7 percent, to $4.87; British Airways dropped 6 percent, to $4.49; and in Germany, Lufthansa's stock dropped 3.4 percent, to $11.73. Also in Germany, Munich Re, the world's largest reinsurer, tumbled 4.2 percent, to $101.83; and insurance company Allianz dropped 3.7, to $112.39.

Wise Money wishes all of the best of luck and hopes for a speedy and full recovery to the families and friends of all of those effected by the London bomb blasts.

Olympic boost for UK fails to lift Pound

Great GB news yesterday with the UK winning the bid for the 2012 Olympics!

The FTSE 100 rose to a 3 year high at 5229.6 boosted by investment in engineering and building sectors. The feel good factor has failed to hit the fx markets however with cable (£/$) reaching new lows overnight to 1.7467.

Today is Interest Rate Day with announcements both from the UK and the Eurozone. Whilst we are certainly not expecting a cut by the latter, the market will look to any change in stance via associated comments from the current position of rates being “exactly appropriate”.

There are a few vocal commentators out there arguing for a 25bp cut by the MPC today. It is suggested that the likelihood is 30% at most, so the market will react should they go for it at noon today. Whilst the knee jerk could be to sell the mighty pound, it may be that a pre-emptive cut will be looked at in a favourable light medium term as economists decide that this will ensure that interest rates will not have to fall so far.

Halifax announced its monthly housing date this morning: house price inflation slowed to its lowest level for more than four years (March 01) and down 0.1% on the month though the number of purchases increased month on month.

No other data of note out today – 12pm MPC and 12.30pm ECB announcements key. G8 kicks off this morning no doubt with Blair nursing a sore head from celebrating all night and Chirac – well just with a sore head!

Dollar is close to 14 month high vs Sterling & Euro

The US Dollar traded near a 14-month high against the euro in Europe as the extra yield that two year U.S. Treasuries offer over similar maturity German bonds approached the highest in five years.

The U.S. currency also held near a 10-month high against the yen. It has climbed on expectations the Federal Reserve, which raised interest rates nine times since June 2004, will keep increasing them. Reports this week will probably show U.S. economic growth is outpacing that of Europe.

Against the euro, the dollar traded at $1.1901 at 7:05 a.m. in London, from $1.1903 yesterday in Toronto, according to currency-dealing system EBS. It was at 111.83 yen, from 111.61 yen. The dollar yesterday rose as far as $1.1889 per euro, the strongest since May 17, 2004.

The spread, or gap, between two-year Treasury notes and same- maturity German debt widened to 1.69 percentage points on July 1, the most since 2000. The gap has increased from 62 basis points on Jan. 3. It was 1.65 percentage points today. A basis point is 0.01 percentage point.

A measure of expansion in European services yesterday fell to 53.1 from a seven-month high of 53.5 in May, according to a survey of 2,000 purchasing managers of companies such as banks and airlines.

The ECB will on July 7 probably keep its key rate at 2 percent, where it's been for more than two years.

The dollar's rally may accelerate when it strengthens beyond $1.1885 to $1.1880 per euro, where automatic orders to buy the U.S. currency have been placed. Traders typically place orders to buy or sell a currency to limit losses in the event their bets go the wrong way.

Gains in the dollar may be limited because of speculation a two-week advance that also pushed it to a 10-month high against the yen was excessive.

A technical gauge of how fast the yen declined reached a level that may signal a change in direction. Japan's currency, which last quarter had its worst three months in more than a year, fell to the lowest since August yesterday before snapping an eight- day losing streak.

The Nikkei 225 Stock Average yesterday had its highest close since April 12.

The yen, which yesterday was as low as 111.88 per dollar, the weakest since August, may rise to 108 by the end of the month, Sasaki said.

The yen's 14-day relative strength index against the dollar was at 71.38. The index is a gauge of momentum in a given period, and a level above 70 or below 30 signals a change in direction. The euro's RSI was at 33.25.

The yen may still lose support after oil rose, raising concern higher fuel prices will crimp growth in Japan.

Crude oil for August delivery rose as much as 0.9 percent, to $59.25 a barrel in after-hours electronic trading on the New York Mercantile Exchange. Oil prices are 49 percent higher than a year ago. Japan imports virtually all its petroleum.

Dollar hits 13 month highs vs sterling and euro

The dollar rose to new highs on Friday as buoyant data on the US manufacturing sector added to expectations of more rate rises to come from the Federal Reserve.

The greenback surged 1.1 per cent to a 13-month high of $1.1958 against the euro, breaking through a stubbornly defended technical barrier at $1.20, after trading flat for most of the week.

There are a couple of themes for this week – the G8 meeting at Gleneagles on Wednesday through Friday and the MPC monthly meeting Tuesday to Wednesday.

The MPC will have a focus this week that we haven’t seen for a long while as a real chance emerges that we will see the first interest rate cut for over 2 years. Last month 2 of the 9 strong committee argued that a pre-emptive cut would obviate the need for more aggressive action in the long run.

A 40% chance of a cut this month has been cited, though consensus still believe that August will be the preferred month allowing the committee to wait for the Quarterly Inflation report. Further, one of these doves Marian Bell has subsequently left and has been replaced by David Walton anticipated being more of a hawk. The decision on interest rates for this month will be confirmed at noon on Thursday.

The European Central bank also meets at the same time to decide on Eurozone interest rates. Pressure continues to mount to cut rates and give nonexistent growth a boost, and the ECB continue to ignore it! – Expect more of the same.

Britain takes up the presidency of the G8 and decides to host it from a luxury golf course – nice touch – maybe someone told them that G stood got Golf?

With Saint Bob’s Live8 concerts still ringing in the ears of many across the world and the anti-poverty rally due to kick off in Edinburgh this meeting must surely be the most hyped G8 meeting ever. (And just in case you were afraid to ask G8 are not a middle of the road male singing group but the nations: UK (obviously in order of importance!), US, Japan, Germany, Italy, France, Canada and Russia. Key topics are due to be not only the issue of African debt, but the global economy and climate change.