Richard, I would like to see polls after Americans look (not that they do at their 401k accounts...
Clinton report to set tone for financial markets
11:50 a.m. Sep 11, 1998 Eastern
By Alistair Thomson
LONDON, Sept 11 (Reuters) - Reaction to the report on the scandal surrounding President Clinton will be the driving force for financial markets in the coming week, especially in the light of a bearish dollar, economists said.
With other factors also weighing on sentiment, the dollar would have little cause for celebration even if markets interpreted independent counsel Kenneth Starr's report as less damaging than anticipated, they added.
''I still feel relatively bearish on the dollar at this stage,'' said Kay Sinden, senior European economist at Bankers Trust International in London.
''The U.S. has still got a lot of problems to overcome,'' she added. ''It is probably the most exposed now to emerging market crises in that it has Latin America on its doorstep.'' Clinton faces the possibility of the first impeachment proceedings against a U.S. president since Richard Nixon left office in 1974.
''I suspect there is enough negative sentiment in the dollar market at the moment such that the report, whatever its contents, will probably send the dollar down'' said Steve Barrow, currency strategist at Bear Stearns International.
On Friday the dollar plumbed 16-month lows against the German mark, and 20-month lows versus the Swiss franc.
''I don't get any sense at the moment the dollar currency is in a mood to decide it's discounted all the bad news out there,'' Barrow added.
But the tumbling dollar and political drama in the United States would not totally eclipse the financial and political situation in Russia, where President Boris Yeltsin averted a crisis by nominating Yevgeny Primakov, a favourite of the powerful communist party, as Prime Minister.
The Duma lower house approved Primakov's nomination on Friday.
''The Russian economy is in deep trouble, its financial system implodes and the political scene is highly unstable, although the nomination of Primakov offers a temporary respite,'' said ABN AMRO's Gerlof de Vrij in a note.
Deputy ministers of the Group of Seven industrial nations meet in London on Monday to discuss the crisis in Russia, along with officials of the World Bank, International Monetary Fund and the European Commission.
But analysts were not expecting any decisive action at this stage.
''I think at this stage it's more likely to be rhetoric than any firm measures,'' said Sinden. ''I get the impression people are not expecting any major (injection of) money.''
Barrow agreed any serious response to the Russian crisis was unlikely to come until the situation there was more stable.
But the U.S. and troubled Latin American markets would buy European markets some respite, economists said.
''If you rank the G3, Europe is looking relatively rosy at the moment, even if it has Russia to cope with,'' Sinden said. ''The rest of Central and Eastern Europe seem to be relatively more shielded than Latin America from the developments.''
The economists said stock markets, after their roller-coaster ride, had yet more downside potential.
''We all know that the Fed (U.S. Federal Reserve) wants the stock market to correct as long as it's orderly and not too dramatic,'' said Sindem.
This would give continuing support to bullish bond markets.
''To say bonds are overbought is an understatement, but if people have no alternative, they are going to continue to buy them,'' Barrow said.
Britain would provide a focus after Thursday's statement by the Monetary Policy Committee of the Bank fo England which suggested interest rates had peaked. This meant that minutes from the committee's August meeting to be released on Wednesday would be largely ignored by markets. Markets would also eye Thursday's Bundesbank Council meeting, although the interest rate outlook seemed largely balanced between global market turbulence, which would stem growth, and signs that Germany's domestic economy was gathering momentum, said de Vrij.
On the data front, UK figures would be most closely looked at, with August retail prices due on Tuesday and the public sector net borrowing requirement on Wednesday. German IFO surveys on Friday would also offer clues on the state of the German economy.
''Average earnings (due on Wednesday) will be a focus in the UK as well as the price data,'' said Sinden. ''I'd still be of the view it's still too soon for the MPC to move next month, but should a severe downturn be indicated by any of these data then obviously it's going to be earlier,'' she added.
Copyright 1998 Reuters Limited. |
