In London, shares opened up strongly this morning with the FTSE 100 up 1.7%, as miners and energy stocks were driven by buoyant commodity prices.
Banks also moved higher as risk appetite improved. Similar rises were seen in Europe as the FTSE Eurofirst 300 rose 1.1%.
US stocks closed down last Friday as earnings at computer-maker Dell and homebuilder D.R. Horton trailed analysts' estimates and concerns grew that the European Central Bank will phase out economic stimulus measures. The S&P 500 closed down 0.3% and the Dow Jones was down 0.1%.
Previous working day closing figures:
Dow Jones: 10,318.16
FTSE All-Share: 2,685.30
FTSE 100: 5,267.70
FTSE 250: 9,167.60
FTSE AIM: 657.70
Market snapshots (at 10:08):
FTSE All-Share: +1.63%
FTSE 100: +1.40%
FTSE 250: +1.09%
FTSE AIM: +0.56%
Thoughts with Henderson New Star
Prior to President Obama's visit to China last week, there was much speculation that the visit may result in a change in China's exchange rate policy. This was fuelled by a statement from the country's central bank, which said that it would take major currency trends into account in setting policy. In the event, this proved to be a red herring.
China's aggressive response to the financial crisis has been a resounding success, with the country recovering rapidly from a short-lived slowdown. Its growth has significantly outperformed that of the US, yet its currency, the renminbi, is pegged to the US dollar that has weakened significantly this year, and China is now facing international pressure to allow its currency to appreciate. Keeping the renminbi low in the short term may help exports, but the ‘beggar-thy-neighbour' devaluation policy could cause international trade imbalances to worsen as US exporters are finding it difficult to make headway in China.
No commitment on currency policy was forthcoming from Chinese President Hu Jintao during President Obama's visit; Chinese officials continue to defend their policy of keeping the renminbi steady against the dollar, fearing that big swings in the exchange rate could harm companies and disrupt the economy. Also, a strong currency would make Chinese exports less competitive; unappealing when exports are down 20% and many manufacturing companies have closed.
It is therefore likely that China will stick with its current policy well into 2010, despite some murmurings from its own central bank, which has warned that keeping the exchange rate artificially low could exacerbate the country's trade imbalance attracting speculative money from investors. Keeping the currency pegged requires huge intervention by the central bank and limits its scope to tighten policy. As domestic evidence - strong growth, rising inflation, and rising asset prices - builds in favour of tighter policies, how the government manages the currency regime will be key.
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