Aug 10
9
Wall Street makes a late comeback
Wall Street makes a late comeback
The Dow Jones Industrial Average closed at 10,654, with week-over-week gains of 1.8%. The S&P 500 made weekly gains of 1.8%. The Nasdaq rose 1.5% on the week and finished Friday’s session at 2,289.
The stock market started last week with a 2.2% surge that saw it close above its 200-day moving average for the first time since June. Participants were encouraged by the latest ISM Manufacturing Index, which pulled back for the third straight month to hit 55.5 for July, but still exceeded the 54.2 that had been widely expected.
Midweek action was much more muddled. Participants digested a better-than-expected July ISM Service Index of 54.3, a worse-than-forecast 1.2% drop in June factory orders, a surprise decline in June pending home sales, and flat personal income and spending figures for June.
Some took hope that the job market was seeing improvement since the latest ADP Employment Change stated that private payrolls for July increased by 42,000 when only 25,000 additions had been expected. However, news that initial jobless claims for the week ending July 31 climbed more than expected to a three-month high of 479,000 weighed on sentiment.
Stocks were down as much as 1.6% on Friday, taking the S&P 500 back below its 200-day moving average and encouraged a flight to safety that drove the yield on the 10-year Treasury Note as low as 2.81%, which is almost a 16-month low. A late rebound helped stocks move back above the 200-day average and book a less feeble finish.
Goldman Sachs now expects GDP to accelerate from 1.5% in 2011′s first quarter to 3% in the year’s fourth quarter, which is down from its previous view for growth from 2.5% in 2011′s first-quarter, to 3.5% in the second half of the year. Goldman Sachs also said it expects the unemployment rate to rise to 10% and remain there in 2011.
European stocks tumble on weak economic data
European equity markets fell on Friday, shedding some of their gains from early in the week, as data across the globe disappointed investors. Industrial Production data from both Germany and the UK showed signs of contraction, contrary to the slight expansions forecasted, according to a Bloomberg survey. UK Industrial Production slid by 0.5% in June versus a 0.1% expansion expected, after rising by 0.7% in May. The trend was similar in Germany, where Industrial Production was expected to be 0.5% for July, but in fact declined by 0.6%.
The FTSE 100 index declined again during intraday trading, losing another 33.39 points, or 0.62%, to finish at 5,332.39. The British index now sits down at 1.49% – year-to-date after managing to turn positive last week. Nine of the FTSE’s ten sectors lost on Friday. The consumer goods sector particularly weighed on the index, losing 1.52% during intraday trading. Unilever PLC (ULVR LN), one of the U.K.’s largest manufacturers of branded and packaged consumer goods, lost another 2.71% after dropping 5.19% yesterday. Vodafone Group managed to gain 1.13% to close at 152.25; the company’s share price is now testing its 52-week high of 153.80 that was set back in April.
On Friday, the DAX 30 dropped 73.95 points, or 1.17%, to close at 6,259.63. The German index now sits 5.07% higher year-to-date, making it the only major European equity index to remain in positive territory in 2010. Prior to dropping 100 points after the NFP report, the DAX tested the significant 6,380 level but failed to break through. The index was weighed by its consumer goods sector, which lost 1.82%. Daimler AG and Volkswagen lost 2.75% and 2.15%, respectively.
The IBEX 35 was the biggest loser out of all the major European equity indices on Friday. The Spanish index lost 188.90 points, or 1.74%, to end the week at 10,651.10. It is now down 10.79% year-to-date. Though all of the IBEX’s ten sectors finished lower, the financial companies’ performance was particularly disappointing. The financial sector, which accounts for over 40% of the entire index, gave back 2.25% during intraday trading. Shares of Banco Santander, the nation’s largest bank and the index’s largest holding (22.69%), lost an astounding 2.60% to close at 10.11.
Dollar falls on quantitative easing fears
The dollar was broadly lower last week as the poor non-farm payroll report intensified speculation that the Fed will re-start the quantitative easing program in this week’s meeting. The dollar index dropped to as low as 80.08 before closing at 80.41. Indeed, it was the ninth consecutive week of declines in the index, which was the worst losing streak since 2004. The EUR/USD breached 1.33 level briefly before closing at 1.3278, while the USD/JPY dived to 85.01, inches above the 2009 low of 84.81. The Japanese yen continued to stay in range against most currencies, except the dollar, as stocks maintained their strength in spite of poor job data. Meanwhile, the Canadian dollar lagged behind other majors due to Canada’s poor employment data.
Positive US data from early parts of the week was overshadowed by the disappointing non-farm payroll report. The NFP numbers showed -131k contraction in July versus the forecast of -75k. The prior month’s figure was also revised sharply down from -125k to -221k. The private payroll rose 71k only, lower than the expectation of 80k. The Unemployment rate, though, was unchanged at 9.5%. Other important leading indicators saw the ISM manufacturing index drop less than expected to 55.5 in July, while the ISM non-manufacturing index rose to 54.3, personal income and spending were flat in June. Last week’s data provided nothing to change the market’s expectations of further quantitative easing from the Fed. The yield on 10 the year note dived further to close at 2.824%, dragging the USD/JPY to within touching distance to the 2009 low. The greenback was also extremely weak against the Euro and Sterling.
Gold soars to a 3 week high on Friday
Gold prices continued to climb after finding a trough at 1155.6 on July 28. The rise last week was supported by speculations on the Fed’s QE (Quantitative Easing) and China’s relaxation of rules in gold trading. The benchmark contract closed above 1200 for the first time since July 16 on Friday.
Commodities continued to be driven by macroeconomic events. The WTI crude oil price accelerated its rally after breaking above the resistance at 80 earlier in the week. Prices jumped to as high as $82.97 after a report showed that US crude oil inventories dropped more than expected. Prices then slid later in the week as weak US data triggered worries over the economic slowdown. The front-month contract slumped Thursday after the release of disappointing employment data, but the price managed to hold above $80.
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