CMC Markets Weekly Report

Stocks in the U.S closed near their highs on Friday, climbing steadily throughout the session, buoyed by a strong consumer sentiment report and as investors appeared to show relief after the euro zone's latest plan to solve its debt crisis.

Stocks in the U.S closed near their highs on Friday, climbing steadily throughout the session, buoyed by a strong consumer sentiment report and as investors appeared to show relief after the euro zone's latest plan to solve its debt crisis.

All three major indexes posted an impressive gain for the second week. The Dow Jones Industrial Average jumped 186.56 points on Friday, or 1.55%, to finish at 12,184.26 whilst the S&P500 rallied 20.84 points, or 1.69%, to close at 1,255.19. The Nasdaq soared 50.47 points, or 1.94%, to end at 2646.85.

Twenty-six of the 27 EU nations agreed to pursue tighter integration with stricter budget discipline in the single currency area, but Britain said it could not accept proposed EU treaty amendments after failing to secure concessions.

British Prime Minister David Cameron added Britain would never join the single currency, a statement which was immediately criticized elsewhere in Brussels.

With Britain, the EU's third biggest economy, opting out of the fiscal process, questions over the cohesiveness of the wider bloc will be posed.

Meanwhile, ratings agency Moody's downgraded three French banks, saying their creditworthiness was being hurt by the fragile operating environment for European financials.

On the economic front, consumer sentiment climbed to 67.7, gaining for the fourth consecutive month, according to the Thomson Reuters/University of Michigan's preliminary reading. Economists surveyed by Reuters expected a reading of 65.5.

Meanwhile, the U.S. trade deficit narrowed in October to $43.5 billion, its lowest in 10 months, according to the Commerce Department. The result was in line with Reuters estimates. However, September trade deficit was revised to $44.2 billion from $43.1 billion.

Meanwhile, China's industrial output growth hit its slowest pace in more than two years in November and inflation tumbled as economic conditions deteriorated, raising expectations Beijing will ease monetary policy again.

Elsewhere, the US dollar index fell 0.2% to 78.63 and the Aussie is up the same amount to US$1.0213. Gold was steady at US$1711.10/oz on more clarification of ECB policy intentions.

Base metals all rallied 1-2%, while Brent crude gained US51c to US$108.52/bbl and West Texas added US$1.49 to US$99.83. The US ten-year bond yield jumped 8 basis points as European yields fell.

With concerns in the EU region subsiding for now, Wall Street can now return to trading US markets based on domestic fundamentals – corporate earnings, government policies and economic data. This week Wall Street has a good opportunity to again assess just how the US economy is performing.

Tomorrow night brings the November retail sales numbers which include the all important Thanksgiving weekend figures. Thursday sees industrial production, the Empire State and Philly Fed manufacturing indices, and the producer price index. Friday brings the consumer price index. Tomorrow night also sees a Fed monetary policy meeting.

There will be industrial production numbers released across the globe this week, including the US, Japan and Europe. On Thursday HSBC will report its “flash” December manufacturing PMI estimate for China. Chinese monetary policy is as important as that of Europe or the US at this point.

It's a busy economic week in Australia too. Today we have housing finance, investment lending and the trade balance, and tomorrow we have third quarter dwelling starts and housing affordability along with the NAB business confidence survey. Wednesday its the Westpac consumer confidence survey and on Thursday consumer inflation expectations, along with vehicle sales.

Qantas (QAN) will hold a Strategy Day today and Westpac (WBC) will hold its AGM on Wednesday. National Bank (NAB) will follow suit on Thursday.

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