Election week created generalised turbulence in equity markets, with news on JP Morgan’s loss adding fuel to fire. Asian markets had their worst ever week since Nov last year. Regional markets mirrored activity in world markets, with all markets closing lower compared to the previous week, except for Egypt where Presidential elections are ongoing. The Greek uncertainty led to a three and a half month low in the euro alongside a rise in the pound as BoE decided to put QE on hold. Gold prices recorded the biggest weekly drop this year, losing its safe haven status while oil prices were down on slowing Chinese demand concerns.
Holidays in Japan and Labour Day around the world resulted in low liquidity amidst choppy trade in most markets, then at the end of the week data on the weakness of US and European labour markets hit stocks, sending the S&P 500 to its biggest weekly retreat this year after two weeks of gains. Electoral results in France and Greece will be affecting Eurozone markets by tomorrow, likely leading to greater economic policy uncertainty if Socialists regain power in France. Since the bad news came on Friday, regional markets were less affected. Gold benefited from the uncertainty, while oil retreated on renewed concerns for the global economy. The yen gained as a result of the weak data, but other main exchange rates remained broadly stable.
Markets were volatile, though strong corporate earnings results overshadowed the soft data releases, especially the muted GDP growth in US, and the S&P downgrade of Spain’s sovereign debt last Thursday. Regional markets were mixed, with Q1 profits announcements key; many UAE listed companies, including real-estate firms, announced better-than-expected earnings. The US$ weakened on soft US data though the euro held surprisingly strong in spite of the downgrade; the pound, meanwhile, hit a 22-month high against the euro. Gold prices were up and EIA’s announcement that increased Saudi output helped global oil supply exceed demand by 500k bpd in Feb-Mar also led to some minor fluctuation in oil prices.
Markets were volatile and choppy. US Shares rallied for most of the week, buoyed by corporate earnings, while Eurozone worries persist in the background, somewhat alleviated by increased IMF funding of $430 bn. Regional markets were mixed, with Saudi’s Tadawul rising the most from a week ago on strong Q1 profits. Euro had a good week, helped by German IFO & ZEW numbers, while the yen fell on speculation of additional stimulus from the BoJ. Oil price was gliding down while gold posted a weekly drop.
After the speech by Bernanke, which was interpreted as an announcement of loose monetary policy and possible QE3, equity markets were marking time, with the mood generally negative especially in Asia. Regional markets were mixed though optimistic sentiment continued in the Saudi bourse, where the index lifted to levels not seen since the collapse of Lehman. The euro rallied against the dollar and the yen after Spain announced budget cuts; also, the GBP rose to a 4-month high and the yen was boosted by its fiscal year-end repatriation flows. Talks by some of the biggest global oil buyers over the possible release of emergency reserves and a ventilated intervention by Saudi Arabia spooked oil prices while gold prices rose.
A tumultuous week for global markets: markets were on a roller-coaster last week, having touched close to 8-month highs, but were spooked by the decline in Chinese manufacturing data only to rebound on Friday. Among regional markets, Saudi and Oman were the biggest gainers as in the latter, talks of a potential merger between HSBC Holdings‟ local unit and Oman International Bank lifted shares. The euro closed at a three-week high against the dollar while gold recorded a fourth consecutive weekly loss, in spite of recording the biggest one-day gain in a month. Concerns about Iran continue to affect oil prices, with Brent closing at USD 125.13 on Friday.
Markets have been choppy in the absence of major macro news and a catalyst which could guide expectations. Even the bank stress tests that were negative for Citigroup and other large US banks had limited impact. Regional markets, except KSA (where the trend points upwards), are caught in the erratic swings. Meanwhile, US Treasury yields moved up on better economic data and a reversal of flight-to-safety flows. Asian currencies were weak against the dollar; however, the higher than expected US inflation data towards end of the week led to a slight decline in the greenback. Tensions regarding Iran continue to impact oil prices; gold is mostly weak, leading to increased buying from central banks.
The upward trend is faltering, due to China which announced lower expected growth for 2012 and the waning of the relief after the Greek deal. Difficult decisions remain on the table with little political appetite or coherence to tackle them. Stock markets were feeble and choppy, with regional markets no different - both the DFM and ADX dipped on profit-taking, with the former registering the largest one-week drop since early March 2011. The euro declined in spite of the swaps agreement while positive US data helped the dollar reach multi-month highs against various currencies (hitting the highest in almost a year against JPY). Oil market halted its run while heavy trading on Friday helped gold regain losses made during the week.
The upward trend is gaining ground so even those who are skeptical of its sustainability are forced to join in because their performance is judged against a market benchmark. The wave of optimism swept also the regional markets: Dubai touched a 1-year high while the Saudi market closed yesterday at the highest since Sep 2008. The euro continued to fall against the dollar due to ECB’s injection while the dollar strengthened to a nine-month high against the yen. Gold prices were spooked by the lack of enthusiasm displayed by Bernanke for QE3, and closed on a low from a week ago while oil prices rose to the highest since mid-2008 as rumours of a pipeline blast led to a rush in buying.
Eurozone’s backing for the Greek debt deal failed to stimulate the markets much; but, positive data released helped US stocks reach the highest level since 2008 while Asian markets rallied. Regionally, the Abu Dhabi and Saudi markets hit 5-month and 3-year highs respectively last week, boosted by recent oil price trends and improved global sentiment. Among currencies, euro gained to reach a 11-week high against the dollar while the yen was at a 7-month low. Oil surged to a nine-month high after an unsuccessful IAEA visit to Iran, while gold prices also rose, despite dollar’s weakness.