Global markets await Bernanke speech

2011-06-07 14:43

London - Global stocks recovered Tuesday after another big sell-off on Wall Street as investors awaited a key speech from US Federal Reserve chairperson Ben Bernanke following a run of weak economic news.

Fears over the global economy have grown due to a raft of underwhelming economic indicators around the world, particularly out of the US, which culminated in last week's much weaker than expected US payrolls report for May.

As a result, there is speculation that the Fed may retain its super-loose monetary policy for much longer than initially thought.

The Fed's current $600bn monetary stimulus is due to expire this month and the prevailing view in the markets until recently was that the central bank would drop the program and possibly start raising interest rates by the end of this year.

However, the recent soft batch of economic data has led some in the markets to speculate that the Fed may consider more monetary stimulus and keep interest rates at the record low of near zero percent well into next year.

Bernanke's speech later at the International Monetary Conference in Atlanta, Georgia could have a huge impact on markets.

"Bernanke's speech provides the Fed chairman with an opportunity to update his views on the state of the economy," said Neil MacKinnon, global macro strategist at VTB Capital. "In light of the soft data on house prices, industrial production and the labour market there is no doubt that the Fed's projection of 3.1-3.3% GDP growth for this year is demanding."

In the run-up to the speech, which is due to be delivered around 1945 GMT, stocks were relatively solid. European shares were further buoyed by news that retail sales in the 17 countries that use the euro rose by 0.9% in April, three times the rate anticipated.

In Europe, Germany's DAX rose 0.6% to 7 130 while the CAC-40 in France was 0.6% higher at 3 887. The FTSE 100 index of leading British shares was up 0.3% at 5 878 .

Wall Street was also poised to recoup some recent losses, which have pushed the main indexes to their lowest levels since late March. Dow futures were up 0.4% at 12 132 while the broader Standard & Poor's 500 futures rose 0.5% to 1 291.

The other big theme in the markets, aside from the state of the global economy, remains Europe's debt crisis.

Last Friday's effective decision by the European Union and the International Monetary Fund to give Greece the next €12bn batch of bailout funds and signals it may get a second bailout have helped ease worries that the country will default on its mountain of debts.

The relief is particularly notable in the performance of the euro, which was trading near one-month highs of $1.4674. Earlier, it struck its highest level since May 5 at $1.4682.

Asian shares, meanwhile, turned in a mixed performance.

Though Japan's Nikkei 225 closed up 0.7% at 9 442.95, South Korea's Kospi index slipped 0.7% to 2 099.71,

Hong Kong's Hang Seng index lost 0.4% to 22 868.67 while mainland Chinese shares gained as investors kept on snapping up bargains following recent sell-offs. The benchmark Shanghai Composite Index gained 0.6 percent to 2 744.30, while the Shenzhen Composite Index of China's smaller, second exchange gained 0.7% to 1 132.69.

Oil prices meanwhile continued to trade in a fairly narrow range around the $100 a barrel mark ahead of a meeting of the Opec oil cartel. Benchmark crude for July delivery was up 11 cents to $99.12 in electronic trading on the New York Mercantile Exchange.

Analysts are looking for clues on what Opec will do about oil production when the cartel meets Wednesday in Vienna. Opec ministers could decide to try to lower oil prices by increasing production. Some Opec officials have said that they believe oil prices are too high and threaten global economic recovery.