CMC Markets Weekly Report
Stocks in the U.S bounced off their lows Friday, but still ended in negative territory amid expectations of an imminent S&P ratings downgrade of several euro zone countries.
Stocks in the U.S bounced off their lows Friday, but still ended in negative territory amid expectations of an imminent S&P ratings downgrade of several euro zone countries.
With stocks off their worst levels, some experts said the move implies that U.S. equities may have already priced in the negative news or are in the process of decoupling from Europe.
The Dow Jones Industrial Average finished the session lower, down 48.96 points, or 0.39 percent, whilst the S&P500 and the Nasdaq also closed lower ahead of the long weekend.
The closing bell rang just before ratings agency Standard & Poor's downgraded the credit ratings of nine euro zone countries, stripping France and Austria of their coveted triple-A status but not EU paymaster Germany, in a Black Friday 13th for the troubled single currency area.
In a potentially more ominous setback, talks broke down between Greece and its creditors over a debt swap seen as crucial to avert a Greek default, although officials said more talks are likely this week.
If Greece cannot persuade banks and insurers to accept voluntary losses on their bond holdings, a second international rescue package for the euro zone's most heavily indebted state will unravel, raising the prospect of bankruptcy in late March, when it has to redeem 14.4 billion euros in maturing debt.
S&P lowered its long-term rating on Cyprus, Italy, Portugal and Spain by two notches, and cut its rating on Austria, France, Malta, Slovakia and Slovenia by one notch.
The move puts highly indebted Italy on the same BBB level as Kazakhstan and pushes Portugal into junk status.
The credit-rating agency affirmed the current long-term ratings for Belgium, Estonia, Finland, Germany, Ireland, Luxembourg and the Netherlands.
The US dollar rose against the Euro on speculation about EU credit rating downgrades. The Euro fell from highs near $1.2875 to around US$1.2625 and finished US trade near US$1.2680. The Aussie dollar fell from highs near US103.60c to US102.30c, but rebounded to finish little changed on the Asian close at US103.15c. And the Japanese yen eased from 76.64 yen per US dollar to JPY76.99, and closed US trade near JPY76.93. This morning the Euro was at US$1.2635, Aussie at US103.00c and Japanese yen at 76.85 yen per US dollar.
World crude oil prices eased on Friday as investors closed positions ahead of a holiday weekend. Nymex crude oil fell by US40c or 0.4percent to US$98.70 a barrel and London Brent crude fell by US82c to US$110.44 a barrel.
Base metals eased slightly from 0.1-1.1 percent on Friday in response to a firmer greenback. But tin rose 0.1 percent. Over the week metals rose strongly, up between 2.7-6.3 percent with lead up the least and tin up the most. And the gold price fell on Friday as investors chose to take profits ahead of expected credit downgrades, a holiday weekend as well as a firmer greenback. The Comex February gold price fell by US$16.90 or, 1.0 percent, to US$1,630.80 an ounce. Over the week, gold rose by US$14 or 0.9 percent.
On the economic front, consumer sentiment reached 74.0 in its preliminary January reading, soaring to the highest level since May, according to the University of Michigan's Consumer Sentiment Index. Economists surveyed by Reuters expected a reading of 71.2.
The US trade deficit widened from US$43.5 billion to US$47.5 billion in November - above forecasts centred on a deficit near US$45bn. Exports fell 0.9 percent but imports rose by 1.3 percent. US consumer confidence rose from 69.9 to an 8-month high of 74.0, above forecasts centred on a result near 71.5.
Ahead: In Australia, housing finance, job ads and the monthly inflation gauge are released this week. In the US, markets are closed Monday for Martin Luther King Jr day.
Frequently Asked Questions about this Article…
U.S. stocks bounced off their worst levels but still finished in negative territory as investors reacted to an imminent S&P ratings downgrade of several euro‑zone countries. The Dow closed down 48.96 points (0.39%), while the S&P 500 and Nasdaq also ended the session lower ahead of the long holiday weekend. Some market observers said the bounce suggests U.S. equities may already have priced in the bad news or are beginning to decouple from Europe.
S&P cut long‑term ratings for nine euro‑zone countries: Cyprus, Italy, Portugal and Spain were downgraded by two notches; Austria, France, Malta, Slovakia and Slovenia were cut by one notch. France and Austria lost their triple‑A status, Germany’s AAA was affirmed, Italy was pushed to a BBB level (comparable to Kazakhstan), and Portugal was downgraded into junk territory. S&P affirmed ratings for Belgium, Estonia, Finland, Germany, Ireland, Luxembourg and the Netherlands.
Talks between Greece and its creditors broke down over a proposed debt swap that was seen as crucial to avoiding default. Officials said more talks are likely, but if Greece cannot persuade banks and insurers to accept voluntary losses on bond holdings, a second international rescue package could unravel, raising the prospect of bankruptcy in late March when €14.4 billion of maturing debt must be redeemed.
The U.S. dollar strengthened against the euro on speculation around the downgrades. The euro moved from near US$1.2875 down to around US$1.2625 and finished U.S. trade near US$1.2680. The Australian dollar fell from about US$1.0360 to US$1.0230 before rebounding to roughly US$1.0315 at the Asian close. The Japanese yen eased from JPY76.64 per US dollar to about JPY76.99, closing near JPY76.93; morning levels cited were EUR US$1.2635, AUD US$1.0300 and JPY 76.85 per US$1.
Ahead of the holiday weekend investors trimmed positions: Nymex crude fell US$0.40 (0.4%) to US$98.70 a barrel and Brent eased US$0.82 to US$110.44. Base metals fell modestly (about 0.1–1.1% on Friday) though they rose strongly over the week (up roughly 2.7–6.3%), with tin the best performer and lead the weakest. Gold fell on Friday as investors took profits ahead of expected credit downgrades and the holiday—Comex February gold dropped US$16.90 (1.0%) to US$1,630.80 an ounce, but gold was up about US$14 (0.9%) for the week.
Two notable releases: the University of Michigan’s preliminary January Consumer Sentiment Index rose to 74.0—the highest since May and above Reuters’ forecast of about 71.2—and the U.S. trade deficit widened to US$47.5 billion in November from US$43.5 billion, with exports down 0.9% and imports up 1.3%.
Australia is set to release housing finance figures, job advertisements data and the monthly inflation gauge this week. These indicators help everyday investors gauge domestic credit demand, labour market conditions and inflation trends, all of which can influence interest rate expectations and local market sentiment.
Yes. U.S. markets were closed on Monday for Martin Luther King Jr. Day, and the article notes that trading activity ahead of long holiday weekends can lead investors to reduce positions—contributing to lower volumes and price moves in assets like oil and gold.
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