CMC Markets Weekly Report

A difficult week on Wall Street came to a dismal end, with storm clouds of another recession and a crippling debt crisis circling overhead and dampening investor appetite for risk.

Washington leaders failed to reach an agreement on raising the $14.3 trillion debt ceiling, setting the table for more troubles when the market reopens tonight.

The Dow Jones Industrial Average fell 96.87 points, or 0.79%, to close at 12,143.24, whilst the S&P500 fell 8.39 points, or 0.65%, to close at 1,292.28. The tech heavy NASDAQ closed down 9.87 points, or 0.36%, to finish the week at 2,756.38.

Hopes lingered for an 11th-hour deal to raise the $14.3 trillion debt ceiling and avoid what Obama administration officials describe as potential catastrophe.

While the Washington debt impasse generated some its share of ill will, the government's first reading on economic growth also hammered sentiment.

Gross domestic product for the second quarter came in at an anaemic 1.3%, worse than the 1.8% expectation and likely to raise fears of a double-dip ahead. Moreover, the first quarter's already-weak reading of 1.9% was revised to a paltry 0.4%, suggesting an economy nearing a double dip despite trillions in liquidity from the Federal Reserve and government stimulus.

That added to an already pessimistic feeling after House of Representatives Speaker John Boehner failed to rally enough support for his plan to raise the debt ceiling before Tuesday's deadline.

President Obama addressed the nation later in the morning, declaring the Boehner plan dead on arrival and encouraging citizens to pressure their lawmakers to get a deal done. The markets reacted little to the president's speech.

Reflecting the fear overall, gold prices surged to a record close at $1,629 an ounce, while base metal prices were mixed on the London Metal Exchange on Friday. Nickel rose 1.8% and copper rose 0.2% but other metals fell between 0.5%-1.6%. Over the week, metal prices were mixed. Nickel rose 4.3% with copper up 1.6% and aluminium gained 1.4%, but lead lost 2.8% and other metals fell up to 0.7%.

Major currencies rose against the greenback after US economic growth data was released. The Euro rose from lows near US$1.4235 to US$1.4400, ending the US session at US$1.4370. The Aussie dollar rose from US109.15c to US110.10c, ending US trade near US109.85c and the Japanese yen strengthened from 77.65 yen per US dollar to JPY76.85, ending US trade near the strongest levels.

Benchmark crude oil prices fell on Friday in response to weak economic growth in the US and on-going uncertainty about whether US politicians would hammer out a budget deficit/debt deal. Nymex crude oil fell by US$1.74 or 0.7% to US$95.70 a barrel and London Brent crude fell by US66c to US$116.70 a barrel.

In economic news, the first week of the month sees PMI week across the globe. Today sees the round of manufacturing PMIs from Australia, China, the eurozone, UK and US, and Wednesday sees the same for service sector PMIs. For the US, the manufacturing PMI is considered an important economic indicator, as is unemployment. This week sees the ADP private sector jobs report on Wednesday and the official non-farm payrolls number on Friday.

The US will also see construction spending tonight, personal income and expenditure and vehicle sales on Tuesday, factory orders on Wednesday and chain store sales on Thursday.

It is also a big week for central bank policy decisions. Tomorrow the RBA meets with consensus not expecting a move while there are debt issues ongoing in both the US and Europe.

Both the ECB and Bank of England hold policy meetings on Thursday and the Bank of Japan on Friday. No changes are expected.

Australia's economic data week begins today with the TD Securities monthly inflation gauge. While this is not an official measure, the RBA does take note. But please be ready to ignore media hysteria if the annualised headline number is well over 3%. The RBA looks at the underlying (core) measure. Today also sees the HIA's new home sales data along with the manufacturing PMI.

Tuesday it's building approvals and the June quarter house price index, Wednesday brings the services PMI, retail sales and the trade balance, and on Friday it's the construction PMI.

This week things will begin to warm up for the August result season, which reaches its crescendo in the last two weeks of the month. The big day this week will be Thursday, which sees results from Energy Resources of Australia (ERA), Rio Tinto (RIO), Seven West Media (SWM), Tabcorp (TAH) and Transurban (TCL). ResMed (RMD) rounds off the week on Friday.