After a volatile 5 days, world stock prices just managed to close the last 5 days in the black. It was a week of two halves with the good work from the start of the week being undone in the second half as traders slipped into reverse gear on Thursday and Friday. At least markets managed to hold the gains from the previous week which in the context of the bear market is no mean feat.
Markets shot out of the gates last Monday, and more importantly, managed to hold those gains for most of the week. The news flow continued to be mixed, but investors chose to take a ‘glass half full’ rather than a ‘glass half empty’ philosophy. For example on Wednesday, markets were buoyed by the better than expected US durable goods orders. Traders chose to focus on the short term improvement in these figures, rather than the fact that prices were down 22% since February 2008, registering their second largest year on year fall. When confidence is shot to pieces, this positive spin would not happen, but now the bulls have a spring in their step and are willing to take some risks.
There was no positive spin to put on the failure of the UK government gilt last week though. The gilt auction failure causes a volatility spike in government bonds and across currency markets.
Ironically it is the financial sector that provided some stability within the FTSE last week, with the momentum still behind a resurgent Barclays. Lloyds, RBS, HSBC and Barclays finished the week up 27%, 5%, 5% and 52% respectively. Barclays launched higher on the news that it is putting IShares up for sale, and the buying continued when it was reported the Barclays had passed the MPC’s stress test, which means it may not have to return to the market for new funds.
Commodity prices had a mixed week with oil dropping around $1.50 on Friday, erasing most of the gains made earlier in the week. Aside from economic factors, President Obama’s fuel efficiency plans appeared to hit crude and gasoline prices. Amongst other things, Obama has set a minimum requirement of 30.2 miles per gallon for passenger cars. The annual vehicle distance travelled by US drivers was increasing at an almost parabolic rate until 2008, when the total vehicle miles travelled dropped by 3.7% year on year. A continuation of this trend, and US government support for greater fuel efficiency, could put further pressure on crude’s nascent recovery.
On the currency trading news, there was a big reversal of sentiment against the euro, which closed down hard against the yen, dollar and even the pound. Fears over the European economy intensified last week, increasing speculation that the ECB will cut to 1% this coming week. Rumours of the ECB planning to follow the MPC and FOMC in quantitative easing also hit the currency.
As usual with the first week of the month, the hot trading ticket this week is the US Non Farm Payroll report on Friday, preceded by the ADP employment change report on Wednesday. Aside from this, there is the ECB rate decision on Thursday, and US pending home sales on Wednesday. The nationwide House Price Index and Halifax House Price Index are both due sometime throughout the week, and the G20 meeting on Wednesday could spring some surprises, so check with your fx broker for all the latest details.
Last week, the so called “Dr Doom”, Nouriel Roubini stated that markets had got ahead of themselves, with analysts starting to underestimate how bad company earnings announcements will be in the coming months, suggesting that what we are seeing in the markets at present is nothing more than a dead cat bounce!
