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.

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