CMC Markets Weekly Report
Stocks in the U.S finished the final trading day of a weak second quarter with a huge bang as Wall Street cheered a surprise agreement by EU leaders to help the region's struggling banks.
Stocks in the U.S finished the final trading day of a weak second quarter with a huge bang as Wall Street cheered a surprise agreement by EU leaders to help the region's struggling banks.
The Dow Jones Industrial Average surged more than 2 percent for the session, whilst the S&P500 and the Nasdaq also soared to post their best trading day in 2012.
EU leaders at a summit in Brussels agreed that euro area rescue funds could be used to stabilise bond markets without forcing countries that comply with EU budget rules to adopt extra austerity measures or economic reforms.
The deal had followed Spain and Italy's earlier withholding of support for a growth package. European shares jumped to finish at a seven week high following the deal announcement, but exact details of the agreement have yet to be worked out.
The euro surged by 2.4 percent, sending the US dollar index plummeting 1.4 percent to 81.59. Commodity prices soared. West Texas crude jumped 9% or US$7.18 to US$84.87/bbl. Brent rose 7 percent or US$6.44 to US$97.80/bbl. Previously weary base metals prices leapt 2-6 percent, with copper up 4 percent.
Gold surged 3 percent, or US$47.10 to US$1599.10/oz. In this move gold is not wearing a “safe haven” hat, but a monetary inflation (and reverse of the USD) hat. Silver jumped over 4 percent. The Aussie dollar is up over two cents to US$1.0255.
Results of the EU summit trumped a batch of tepid economic news. Consumer sentiment dipped to its lowest levels this year, while consumer spending was flat in May for the first time in five months.
The pace of business activity in the Midwest edged up in June, according to the Institute for Supply Management-Chicago's business barometer.
In the week ahead, the RBA meeting is tomorrow, preceded by the release of the TD Securities inflation gauge today and the RP Data-Rismark house price index. Australia will follow on from China with its manufacturing PMI and tonight sees PMIs from the eurozone, UK and US. China will provide its services PMI tomorrow and the world will follow suit on Wednesday.
Tomorrow in Australia also brings building approvals. On Wednesday it's retail sales, on Thursday the trade balance, and Friday's construction PMI wraps up a busy week. This week also introduces – just in case you've been living under a rock – the carbon and mining taxes.
In the US we'll see construction spending tonight along with the manufacturing PMI, and on Tuesday it's factory orders and vehicle sales. The NYSE will close at 1pm on Tuesday (3am Sydney time) ahead of the Independence Day holiday on Wednesday, for which all US markets will be closed. The holiday pushes the release of the ADP private sector unemployment numbers to Thursday, along with chain store sales, and on Friday it's non-farm payroll day.
Frequently Asked Questions about this Article…
The surprise agreement by EU leaders to let euro-area rescue funds be used to stabilise bond markets sparked the rally. Wall Street cheered the move: the Dow Jones Industrial Average surged more than 2% for the session, while the S&P 500 and the Nasdaq posted their best trading day in 2012.
The EU leaders’ deal sent the euro sharply higher — the euro surged about 2.4% — and pushed the US dollar index down roughly 1.4% to 81.59. Currency moves reflected renewed risk appetite after the summit, which can influence export-sensitive stocks and commodity prices.
Commodity prices jumped after the summit: West Texas Intermediate crude rose about 9% (up US$7.18 to US$84.87/bbl), Brent climbed roughly 7% (to US$97.80/bbl), base metals gained 2–6% with copper up around 4%, gold jumped about 3% (to US$1,599.10/oz) and silver rose over 4%. The article notes gold moved more as a response to monetary/inflation and a weaker USD rather than a classic safe-haven trade.
EU leaders agreed rescue funds could be used to stabilise bond markets without forcing countries that already comply with EU budget rules to take on extra austerity measures or reforms. The article notes that while markets reacted positively, the exact details of the agreement still needed to be worked out.
Australian investors should watch the RBA meeting (scheduled for tomorrow), today’s TD Securities inflation gauge and the RP Data‑Rismark house price index, upcoming manufacturing and services PMIs, building approvals, retail sales (Wednesday), the trade balance (Thursday) and Friday’s construction PMI. The week also brings the introduction of carbon and mining taxes.
In the U.S. expect construction spending and the manufacturing PMI, followed by factory orders and vehicle sales. The NYSE will close early at 1pm on Tuesday and be shut Wednesday for Independence Day (US markets closed), which pushes the ADP private sector unemployment numbers to Thursday alongside chain store sales; Friday brings the important non‑farm payroll report.
Despite the strong market rally from the EU summit, underlying economic data were mixed: consumer sentiment dipped to its lowest levels this year and consumer spending was flat in May, while business activity in the US Midwest (Chicago PMI) edged up in June. In short, policy news trumped tepid economic indicators that week.
The week shows how policy headlines (like the EU summit) can quickly drive markets and commodity prices, even when economic data are weak. Everyday investors should monitor major policy events (central bank meetings and international summits), stay aware of the economic calendar (PMIs, retail sales, payrolls) and expect volatility around these releases.
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