CMC Markets Weekly Report

Stocks in the U.S accelerated their selloff to finish near session lows in light, choppy trading Friday as investors were reluctant to remain in the market ahead of a weekend, amid worries over a global recession in addition to the ongoing euro zone jitters.

By ·
22 Aug 2011

Stocks in the U.S accelerated their selloff to finish near session lows in light, choppy trading Friday as investors were reluctant to remain in the market ahead of a weekend, amid worries over a global recession in addition to the ongoing euro zone jitters.

All three major averages logged their biggest four-week decline since March 2009, with the S&P500 tumbling almost 16 percent during the period. It tumbled 17.12 points, or 1.50 percent, to end at 1,123.53, with many traders now watching 1,101 as the next support level.

The Dow Jones Industrial Average shed 172.93 points, or 1.57 percent, to finish at 10,817.65, whilst the tech heavy Nasdaq fell 38.59 points, or 1.62 percent, to close at 2,341.84.

Stocks started the week with a strong rally, thanks to a handful of M&A activity and amid hopes that European leaders may be close to taking some action to help resolve the ongoing debt crisis.

However, the gains were erased throughout the week as concerns over the global economic growth surfaced, following a flurry of disappointing economic news. In addition, the major concern now is the issues surrounding European financials spilling over into the U.S. banking system.

European stocks finished in the red after already suffering heavy losses in the previous session over fears that euro zone leaders would not be able to contain the debt crisis.

Meanwhile, the French and German Finance Ministers are scheduled to meet in Paris next Tuesday. They are expected to provide detail to the proposals sketched by French President Sarkozy and German Chancellor Merkel earlier last week.

With a lighter-than-usual calendar next week, investors will be closely watching Federal Reserve chairman Ben Bernanke's speech at Jackson Hole on Friday. Investors will watch for any signs of a possible round of asset purchases (also known as quantitative easing) which will likely help bolster the stock market.

Banks in Europe tumbled near 2-1/2 year lows last week amid rumours about the financials' potential losses on bonds issued by government debt.

Base metals stabilised on Friday after Thursday's sell-off, rising around 0.5%, while Brent oil bounced back US$1.63 to US$108.62/bbl and West Texas managed US32c to US$82.70/bbl. Currencies were also more stable, with the US dollar index falling 0.3% to 73.99 and the Aussie was up 0.2% to US$1.0407.

This morning has brought news that Libyan rebels are making the final push into Tripoli with little resistance being encountered. With the Gaddafi regime look set to collapse, Brent oil is moving lower in early electronic trade.

Moving to this week, the highlight, as mentioned, will be Bernanke's speech at Jackson Hole on Friday. And Friday is also the day the first revision of US June quarter GDP is released.

Prior to Friday's activities, releases in the US this week include the Chicago Fed national activity index tonight, the Richmond Fed manufacturing index and new home sales on Tuesday, and the FHFA house price index and durable goods orders on Wednesday. On Tuesday through Thursday the US Treasury will auction US$99bn of two, five and seven-year notes. If the recent trend continues, the world will pile into the twos, be so-so with the fives, and shy away from the sevens.

This Friday also sees a fortnightly release of the Michigan Uni consumer sentiment survey, which a fortnight prior posted a shock fall to its lowest level since 1980 at the end of the week of turmoil.

During this week the two widely watched European business sentiment surveys will be released – the ZEW and the German IFO – and on Tuesday an estimate of the eurozone's composite PMI for August will be released. And speaking of estimates, HSBC's “flash” manufacturing PMI for China will also be released on Tuesday.

In Australia we're building up to the September 7 release of our own June quarter GDP. Last week saw the release of the June quarter wage cost index, and Wednesday brings construction work done along with the Conference Board leading economic index from June. Thursday it's June quarter housing affordability, and on Friday RBA governor Glenn Stevens will make his regular testimony to the House of Reps.

This week also marks the biggest week of the year in the Australian corporate earnings result calendar. Highlights include:

  • Monday: James Hardie (JHX), Caltex (CTX), Challenger Financial (CGF), Primary Healthcare (PRY) and Bluescope Steel (BSL).
  • Tuesday: Consolidated Media (CMH), Mirvac (MGR), Oil Search (OSH), Origin Energy (ORG), Sonic Healthcare (SHC), Tatts Group (TTS), Fosters (FGL) and Seek (SEK).
  • Wednesday: Qantas (QAN), BHP Billiton (BHP), Worley Parson (WOR), Downer EDI (DOW), Skilled Group (SKE), Macarthur Coal (MCC), Suncorp Metway (SUN), Pacific Brands (PBG) and Asciano (AIO).
  • Thursday: AGL Energy (AGL), Insurance Australia (IAG), Virgin Blue (VBA), Seven Group (SVW), Woolworths (WOW), Cabcharge (CAB), Aristocrat Leisure (ALL) and Crown (CWN).
  • Friday: Fairfax Media (FXJ), Lend Lease (LLC), Perpetual (PPT), and Sims Group Metal (SGM) rounds off the week.

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