CMC Markets Weekly Report

Stocks in the U.S. finished higher in a volatile session Friday after Bernanke's speech raised hopes that the Fed may consider further stimulus measures to boost the economy during an extended policy meeting next month.

The major indexes snapped a four-week losing streak, with the Dow Jones Industrial Average rallying 134.72 points, or 1.21 percent, to finish at 11,284.54. The Dow plunged almost 220 points in a knee-jerk reaction immediately after Bernanke started his speech, but quickly pared their losses.

The S&P500 gained 17.53 points, or 1.51 percent, to end at 1,176.80, while the Nasdaq climbed 60.22 points, or 2.49 percent, to close at 2,479.85.

Federal Reserve Chairman Ben Bernanke said the Fed is ready to use additional tools to help the economy, but he stopped short of talk of another round of monetary easing. Bernanke said the Fed will meet for an extra day in September to discuss its options to provide additional monetary stimulus, among other topics.

While Bernanke expects growth to pick up in the second half of the year, if signs of a recovery fail to materialize in the near-term, the FOMC may consider additional policy tools at its September meeting.

ECB President Jean Claude Trichet is expected to speak at Jackson Hole Saturday and some are expecting him to signal a more dovish position on rates.

On the economic front, the economy grew much slower than expected in the second quarter as GDP rose at an annual rate of 1 percent.

Meanwhile, consumer sentiment edged up from its mid-August level but was still near recession-era lows.

The bottom line is that on Friday night, Bernanke neither announced nor ruled out some form of further monetary stimulus. Gold rallied US$56.00 to US$1827.90/oz in response to Bernanke's comments. Up to now gold and stocks have moved inversely, implying “risk off” trading and a flight to safety, but with further monetary policy measures a distinct possibility, stock markets can feel more confident and gold will reflect the expectation of inflation.

Similarly, the US dollar index fell 0.7% to 73.72, sending the Aussie up nearly one and a half cents to US$1.0575.

Base metal movements followed those of stocks, falling initially but then rebounding with short-covering again being noted. Copper was steady but nickel jumped 3%. Oil was relatively steady, with Brent up US74c to US$111.36/bbl and West Texas up US25c to US$85.55/bbl.

European shares ended lower, but managed to eke out a small gain for the week to break a four-week losing streak. Banks and insurers, particularly those not covered by the region's short-selling ban, were the hardest hit.

There is a wealth of economic data for the US to sift through this week which will no doubt shed more light on the state of the US economic recovery. Tonight sees personal income and spending, tomorrow night the Case-Shiller house price index and the Conference Board leading index, Wednesday the Chicago PMI and factory orders, and Thursday chain store sales, vehicle sales, construction spending and productivity.

It's jobs week in the US, with the ADP private sector number due on Wednesday and non-farm payrolls on Friday. On Thursday it's global manufacturing PMI day, with all of Australia, China, the eurozone, UK and US reporting. On Tuesday the minutes of the last Fed meeting will be released, but with all eyes now on the September meeting these will be somewhat redundant.

Housing is in the frame in Australia this week, with new home sales out today, building approvals on Tuesday and the RP Data-Rismark house price index on Wednesday, along with private sector credit. Thursday sees the manufacturing PMI but also one of the most important data sets of all as far as the RBA is concerned – June quarter capital expenditure and capex intentions. We recall that significant capex plans from the resource sector have to date been driving the central bank's hawkish position.

We're almost at the end of result season in Australia, with three more days to go to see out August. Today's highlights include QR National (QRN) and Goodman Fielder (GFF).

It's a bank holiday in the UK tonight, so markets are closed including base metal markets.