CMC Markets Weekly Report
Stocks in the U.S wrapped up a volatile week with a solid rally on Friday but still left the major averages mostly lower for the week.
Stocks in the U.S wrapped up a volatile week with a solid rally on Friday but still left the major averages mostly lower for the week.
Banks unexpectedly led the Friday rally, while technology stocks also helped the market recover from a 251-point beating on Thursday, attributed largely to a trader revolt against the Federal Reserve failing to provide another round of quantitative easing stimulus.
The Dow Jones Industrial Index and Standard & Poor's 500 both finished up mildly on Friday, 67.21 points, or 0.5%, and 9.51 points, or 0.7%, respectively. The Nasdaq added 33.33 points, up 1.2%.
Traders had worried about bank stocks heading into Friday, after Moody's Investors Service downgraded the credit ratings of 15 of the world's largest banks late on Thursday. Those fears were turned on their head when financials rallied and actually led the market.
The relatively sanguine view of the bank downgrades was likely due to relief that they were less severe than expected, with many analysts anticipating that the biggest names would fall three notches when in fact most fell just two, with only one dropping three notches.
There was no data of note out in the US on Friday, but in Germany it was revealed the IFO survey of business confidence fell to a two-year low this month. More evidence of a deteriorating European economy amid a wider slowing of the global economy.
The eurozone central bank has announced a widening of access to its funds through increasing the collateral it will accept from banks in the form of non-standard assets, such as mortgages, car loans and lower rated securities. The last time the ECB relaxed its requirements a cut to the cash rate followed, and it is expected the ECB will cut to 0.5% from 1.0% next week.
The US dollar index fell back slightly to 82.21 on Friday as the euro managed to recover some ground. The Aussie crept up 0.3% to US$1.0064 and gold scraped back US$7.10 to US$1572.30/oz. The US ten-year bond did not rise much in price on the Thursday, but on Friday the news of further ECB easing saw the ten-year yield rise 5bps to 1.67%.
News of a tropical storm building in the Gulf had oil recovering, with West Texas up US$1.56 to US$79.76/bbl and Brent up US$1.75 to US$90.98/bbl, although the storm has since appeared to have subsided. Base metals were little moved.
In economic news, this week will be dominated by US economic data. The US sees the Chicago Fed national activity index tonight along with new home sales, and the Case-Shiller house price index on Tuesday along with the Richmond Fed manufacturing index and the Conference Board leading economic index. Wednesday it's pending home sales and durable goods, and on Thursday the final revision of March quarter GDP will be made before we start looking at June quarter numbers. Expectations are for the March result to be unchanged at 1.9% growth. Friday's data include the Chicago PMI and the fortnightly consumer sentiment index along with personal income and spending.
The UK will also make a last revision to March quarter GDP on Thursday as a eurozone measure of business and consumer confidence is released, all in time for the summit.
It's a bit of an economic non-event in Australia this week, with Friday's building permits and private sector credit the only highlights.
Metcash (MTS) will release its full-year result on Thursday.
Frequently Asked Questions about this Article…
US markets were volatile after a sharp 251-point drop on Thursday driven in part by trader frustration over the Federal Reserve not delivering more quantitative easing. Markets then rallied on Friday, led unexpectedly by bank stocks and supported by technology shares, which helped major averages finish the day higher despite being mostly down for the week.
Moody's downgraded the credit ratings of 15 of the world’s largest banks late Thursday, creating initial concern. Investors were relieved when the downgrades were less severe than feared — most banks fell two notches and only one fell three — and that helped financials actually lead Friday's market rally rather than suffer further losses.
The ECB widened access to its funds by accepting more non-standard collateral such as mortgages, car loans and lower-rated securities. Historically, easing collateral rules has preceded a cash-rate cut; markets expect the ECB may cut rates to 0.5% from 1.0%, which contributed to a rise in European bond yields and influenced global sentiment.
This week’s US calendar is busy: Chicago Fed national activity index, new home sales, Case-Shiller house prices, Richmond Fed manufacturing index, Conference Board leading index, pending home sales, durable goods, the final March-quarter GDP revision (expected to stay at 1.9%), Chicago PMI and consumer sentiment, plus personal income and spending. These reports will give fresh clues on growth, inflation and consumer strength — all key drivers of market direction and policy expectations.
The US dollar index slipped slightly to 82.21 as the euro recovered some ground. The Australian dollar rose about 0.3% to US$1.0064. After ECB easing news, the US 10-year yield moved higher by roughly 5 basis points to 1.67% as global bond markets adjusted to expectations of more policy action in Europe.
Oil recovered after reports of a tropical storm in the Gulf, with West Texas Intermediate up about US$1.56 to US$79.76/bbl and Brent up US$1.75 to US$90.98/bbl before the storm subsided. Gold rebounded roughly US$7.10 to US$1,572.30/oz. Base metals showed little movement over the week.
Australia’s calendar is light this week, with the main local data being Friday’s building permits and private sector credit figures. That means Australian investors will likely be watching global drivers — US data and ECB action — more closely than domestic releases in the short term.
Metcash (MTS) is scheduled to release its full-year result on Thursday. Investors in retail and wholesale stocks will want to watch that result for any guidance on sales, margins and inventory trends in the sector.
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