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Shares rocket on US jobs and exchange controls: Market Analysis

Following its savaging in yesterday’s trade, the FTSE opened around 100 points higher, a 2% gain that it managed to maintain for much of the morning. Having initially put the European bank lending worries aside, they soon returned to cause a fairly aggressive sell-off in the late morning, this time in response to rumours that Asian banks may be following the Americans in limiting funding to European institutions. The day saw European banks rushing to secure derivative dollar exposure to ensure funding for greater than a week, pushing funding costs in the interbank lending market to their highest levels since 2008. Queues for short term cash at the ECB also echoed the funding squeeze that epitomised the post Lehman crisis, and had markets sufficiently worried to cause the FTSE to crash back through the 5000 level.

However, in a volatile move that has been typical of late, firm US jobs data initiated an afternoon rally that continued to gain momentum towards the market close. Claims for unemployment benefits fell to a seasonally adjusted 395,000, their lowest level since April and slightly lower than the 400,000 widely anticipated. The data was much welcomed in light of recent concerns that the US may be heading towards a US recessions.

Adding further fuel to the rally was news from government sources that a naked short-selling ban will be imposed as of tonight, in France and Italy. This should alleviate pressure on the worst hit securities, most notably the banking sector. From its lows around midday the FTSE put on over 200 points to finish up 2.4%, 120 points higher at 5127 unsurprisingly led higher by Barclays whose shares have been hit hard this week due to its lending agreements with European banks.

In currency markets, the Swiss franc suffered dramatic losses against its major counterparts on news that the Swiss central bank is examining further measures to curb the rise in the Swisse. Whilst not stating it explicitly, a pegging of the franc to the Euro was not ruled out as part of the arsenal of measures being considered. In moves that are rarely seen in FX markets, the franc lost 3.6% and 4.3% against the Dollar and Euro respectively.

This was posted in Bdaily's Members' News section by John Dance .