CMC Markets Weekly Report
Stocks in the U.S closed firmly in the red Friday amid fears that Greece may default on its debt and following news that ECB's Juergen Stark will resign.
Stocks in the U.S closed firmly in the red Friday amid fears that Greece may default on its debt and following news that ECB's Juergen Stark will resign.
For the week, the Dow and S&P 500 plunged more than 5 percent each, while the Nasdaq slumped over 4 percent. The Dow Jones Industrial Average plunged sharply to close around the psychologically-important 11,000 level, down 303.68 or 2.69%. The S&P500 and the Nasdaq followed closing down 2.67% and 2.42% respectively.
Greece's finance ministry issued a statement dismissing rumours that the debt-ridden nation is planning on defaulting over the weekend. "Greece's fundamental choice and priority is it fully and entirely implement the Jul. 21 decision, and wholly fulfill its obligations from the agreement between Greece and its partners," according to the statement from Greece's finance minister.
The news came after Germany said it is preparing plans to shield banks should Greece end up defaulting on its debt, according to a Bloomberg report.
Earlier, markets were rattled following news that ECB Executive Board Member Juergen Stark will step down from his post due to conflict over the central bank's controversial bond-buying program, hinting at a deep divide among ECB members on how to solve the region's fiscal problems.
European shares closed firmly in the red, while the euro fell to six month lows versus the dollar and the yen. The Euro fell from near US$1.3920 to US$1.3630, before ending the US session near US$1.366, whilst the Aussie dollar fell from highs around US106.35c to US104.20c, ending US trade near US104.50c. With the on-going concerns about the sovereign debt crisis in Europe, the Japanese yen was volatile over the European and US sessions. The Japanese yen eased from 77.40 yen per US dollar to JPY77.80, strengthened to JPY77.20 before selling off again in late US trade to JPY77.50.
Global crude oil prices fell on Friday as the US dollar rose and investors retreated from economic growth-dependent commodity prices. Nymex crude oil fell by US$1.81 or 2.0pct to US$87.24 a barrel and London Brent crude fell by US$1.78 or 1.6pct to US$112.77 a barrel. Nymex was up by 0.9% over the week with Brent up 0.4%.
Base metal prices fell on the London Metal Exchange on Friday in response to a stronger US dollar. Metals fell up to 4.2% with nickel and tin faring the worst. Over the week, metal prices fell between 0.3-3% with lead faring the best and tin falling the most. The gold price rose on Friday as investors again embraced safe-haven assets. The Comex December gold price was up by US$2.00 an ounce or 0.1% to US$1,859.50.
Banks in Europe were trading lower across the board after Goldman Sachs cut the price targets for major European financial institutions, saying they may need to raise capital if governments impose haircuts on their sovereign debt holdings.
Meanwhile, investors also remained sceptical over whether President Obama's $447 billion plan to boost jobs would be approved by Congress.
Obama said his $447 billion jobs plan "will provide a jolt to an economy that has stalled and give companies confidence that if they invest and hire, there will be customers for their products and services," in an address to Congress Thursday evening.
On the economic front, wholesale inventories gained 0.8% in July to a seasonally adjusted $462.41 billion, after rising 0.6% in June, according to the Commerce Department.
In China, inflation pulled back in August from a three year high, while economic activity slowed, underlining expectations the central bank can hold off on further monetary policy tightening in the face of a global economic slowdown.
Ahead of next week's all important Fed meeting, US data releases this week include the PPI and retail sales on Wednesday, the CPI and industrial production on Thursday, along with both the Empire State and Philadelphia Fed manufacturing indices, and the fortnightly consumer sentiment index on Friday. Friday also sees long term Treasury capital flows and it is the “quadruple witching” options expiry in stock, futures and options markets which can often spark volatility.
Australia's week begins today with the monthly trade balance, followed by the NAB business sentiment survey tomorrow along with the ABARE crop report for the winter harvest. Wednesday it's the Westpac consumer confidence survey along with June quarter dwelling commencements, and Thursday its vehicle sales along with the RBA's September quarter bulletin.
News from Europe will however dominate trading in the week ahead.
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U.S. stocks closed sharply lower, with the Dow and S&P 500 plunging more than 5% for the week and the Nasdaq falling over 4%. On Friday the Dow dropped about 2.7% to around the psychologically important 11,000 level, while the S&P 500 and Nasdaq fell 2.67% and 2.42% respectively. Those moves matter for everyday investors because broad market declines can affect portfolio values, equity sentiment and short-term volatility across global markets.
Markets were rattled by fears that Greece might default on its debt after reports circulated over the weekend. Greece’s finance ministry pushed back on those rumours, saying the country’s priority is to fully implement the July 21 agreement and meet its obligations. Still, concerns persisted because Germany was reported to be preparing plans to shield banks if Greece did default, which added to market uncertainty.
Juergen Stark resigned from the ECB over disagreements about the central bank’s bond-buying program, highlighting a deep divide among ECB members on how to tackle the eurozone’s fiscal problems. That news unsettled investors, contributed to losses in European shares and pressured the euro lower, as it raised questions about policy cohesion at the ECB.
The euro fell to six-month lows, sliding from near US$1.3920 down to about US$1.3630 before settling near US$1.366. The Australian dollar dropped from highs around US106.35c to about US104.20c, ending near US104.50c. The Japanese yen was volatile: it eased from 77.40 yen per US$ to 77.80, strengthened to 77.20, then moved back to around 77.50 later in the U.S. session. These swings reflect safe-haven flows and market reaction to eurozone sovereign risk.
Global crude oil prices fell as the U.S. dollar strengthened and investors pulled back from growth-sensitive commodities. Nymex crude dropped US$1.81 (about 2.0%) to US$87.24 a barrel and Brent fell US$1.78 (about 1.6%) to US$112.77. Base metals also fell—some by up to 4.2%—with nickel and tin weakest on the day and weekly metal declines between 0.3–3%. By contrast, gold rose as investors sought a safe haven; Comex December gold was up US$2 to US$1,859.50 an ounce.
European banks traded broadly lower after Goldman Sachs cut price targets for major financial institutions. Goldman warned that banks might need to raise capital if governments imposed haircuts on sovereign debt holdings, which would pressure bank balance sheets and investor sentiment in the sector.
President Obama proposed a US$447 billion jobs plan intended to boost an economy that had stalled and encourage business investment and hiring. Investors remained skeptical about whether Congress would approve the package, and that political uncertainty was another factor weighing on market sentiment.
Investors should watch a busy U.S. calendar ahead of the Fed meeting: the Producer Price Index (PPI) and retail sales on Wednesday; the Consumer Price Index (CPI) and industrial production on Thursday; the Empire State and Philadelphia Fed manufacturing indices, plus the fortnightly consumer sentiment index on Friday. Friday is also the “quadruple witching” options expiry and long-term Treasury capital flow data, which can increase volatility. In Australia the week includes the monthly trade balance, NAB business sentiment, the ABARE winter crop report, Westpac consumer confidence, June quarter dwelling commencements, vehicle sales and the RBA’s September quarter bulletin. European developments are also expected to dominate trading sentiment.
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