Jun 10
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Anyoption’s Weekly Market Review – June 7, 2010
Wall Street: unemployment strikes the market
A short trading week was not short of surprises as markets climbed only to fall again on Friday. Markets had barely recovered from Spain’s downgrade the week before, when Hungarian Prime Minister Viktor Orban announced Thursday that his country is also on the verge of defaulting on its mounting debts. The announcement drove the markets down by almost 1% during trading. However, when the US market opened, optimism returned again. The reason for the false optimism was the expectation that the employment report, released on Friday, would be exceptionally good. Analysts were expecting an announcement of a 500,000+ improvement, largely temporary jobs hired, by the big census which was held. This optimism caused the markets to finish on Thursday with a slight increase, only to fall sharply on Friday, as the true results were published. The employment rose 20% lower than expected and almost all new jobs were thanks to the temporary census. Only 41,000 jobs were created in the private sector. The Dow Jones fell in response and finished Friday at 9931.97, more than 3% down, and the Nasdaq finished at 2219.17, a 3.64% fall.
On the other side of the globe, China has its problems too. The recent measures taken to cool down the bubbling real estate market were apparently too effective. Real estate companies’ stocks fell due to uncertainty about future moves, and home sales dropped a whopping 70% in May. Recent developments brought Dr. Doom, Professor Roubiny back to the lime light, as he warns that the European economy will enter a deep recession this year. Could he be right?
The euro freefall continues
The euro fell sharply against the dollar last week, as investors shunned riskier assets and the riskier European countries. On Friday, the EUR/USD traded at 1.1966, a 4 year low. The EUR is trading almost 10% below its March 2009 lows, and is 16.5% down this year. Rumors in the financial world and most newspaper headlines are mourning the EUR, just as they all did at the end of 2009 with the USD. Analysts agree that Jean-Claude Trichet, the ECB president was wrong in handling the crisis too slow. The euro is facing some difficult struggles, none of which are very promising. Dismantling the Euro-Zone, letting some of the members leave the Euro, defaulting of sovereign debt, or devaluing the Euro (which in some senses is happening now) are grave risks the EUR and Euro-Zone faces. Additionally, these are all scenarios which no one knows which way they will end. One thing is certain – the euro is facing a grim future and Trichet needs to act sooner rather than later.
Gold soars to 1000 EUR an ounce
Gold has had excellent 2 weeks. In euro terms, the price for an ounce of gold hit a record of 1017.38 EUR on Friday, and traded above 1000 EUR for the first time. Investors fleeing the risky markets, and the even riskier Euro countries, fled from the EUR to gold. Is gold over inflated? Recent developments in Europe demonstrate the value of gold, while the possibility of sovereign debt default is openly being discussed. Many economists agree that at the moment, an ounce of gold will always remain an ounce of gold, and it is unlikely to drop dramatically… the only thing that can cause prices of gold to drop in the near future is some serious profit taking.
Oil, on the other hand, fell last week. Future contracts fell by more than 4% on Friday and closed at $70.91 a barrel, after a volatile week. The drop followed the disappointing employment report, which again caused concerns about the strength of the recent recovery from the financial crisis. Currently the price of oil is tied to the stock markets, as investors try to derive recovery prospects from stocks performances.
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