Weekly summary 20110612 - Equity markets down into the 6th week

Market update / Weekly recap for Week ending June 12^th 2011.

The US stock market suffered wide-spread selling, pushing the NASDAQ and Russell 2000 in negative territory for the year. As stocks stumbled, market participant sought the relative safety of Treasuries and the dollar. There was a risked sell off in Commodities, the US dollar rose.

The events that triggered the sell-off in Global markets were:

1.    Weak May Manufacturing data across China, US and Europe, Chinese exports data came in lower than expected – this weighed concern about weak demand and a slower global economy.

2.    Fed Chairman, Ben S. Bernanke remarked that there is an ‘uneven’ and  ‘frustrating slow’ recovery into next year – slow global economy

3.    Prospects for a Greek default, European officials clash over how to fix Greece’s debt problems.

4.    Europe’s Monetary Policy Meeting signals rate hike in July but downplays future interest rate hikes into 2012 when inflation forecast was adjusted lower - The Euro fell and the US dollar strengthened.

5.    On-going fear Asian Central Banks would continue to raise rates to curb inflation. India boosted interest rates (nine times) to 7.25% in May 2011 since Mar 2010, Philippines Central Bank boosted overnight deposit rate to 4.5% in May, New Zealand dollar reached a record versus the US dollar after the Reserve Bank of NZ said interest rates will rise within 2 years but kept its benchmark rate at 2.5%, South Korea’s third hike (on Friday) to 3.25% in 2011 (this was mostly unexpected), speculation that accelerating inflation may prompt China to raise rates again.

The sum-of-all fears ‘highlighted’ has caused a weak sentiment that the global economic recovery has stalled, thus weighed concerns on Global demand. This

·         Pushed the Dow Jones Industrial Average below 12,000 for the first time since March

·         Drove the US major indices (DJIA, S&P, and NASDAQ) lower for the sixth straight week. Friday's drop extended the Dow’s longest weekly losing streak for stocks since the fall of 2002.

·         Wiped out the NASDAQ yearly gains for 2011.

·         Sent Europe indices to a 3 month low

·         Pushed most Asia indices to a 6 week low matching the collapse of Lehman Brothers Holding in 2008.

·         Dropped Shanghai B index down 2.7% to 249.9 in the wake of US regulators warning about the risk surrounding Chinese companies that has been listed through reverse mergers, and a string of Accounting scandals

As on the Commodities front,

·         OPEC did not reach a consensus on production targets. However, Saudi Arabia announcing an increase in oil production sent Crude prices lower for the second weekly lost to a close at US$ 99.29.

·         US Corn approaches a record of US$ 8 a bushel on bad US weather. US global inventories will drop as adverse weather slashes acreage. In addition, there is a rise in demand for livestock feed and ethanol.

·         Copper prices drop due to a decline in China imports.

·         Gold fell 1% to close at US$ 1530 as the US dollar rallied and also as a result in weakness in Crude Oil and commodities as speculators turned to risked off selling. Gold closes for the week 0.5% down testing the 20 days MA at US$ 1,524 which had been a support level for the past three weeks.

The CBOE Volatility Index rose 6.13% to 18.86.

In summary, the sentiment I gathered is that most fund managers and investors are sidelined on a risk off mode awaiting further economic data (inflation – CPI core). They are also watching very closely to key technical support levels for Gold, S&P, etc. On the whole, unfavorable economic data outweighs favorable economic data. Technically, financial markets may touch key support levels. For e.g. in the S&P and rebound. But not for the medium term.

There’s a third theory that speculators may pushed the markets much lower so as to engage the Fed to consider the probability of another Quantitative Easing program. Let’s see how it goes.

The events Next Week:

MONDAY: Fed's Lacker speaks, GOP Presidential debate
TUESDAY: NFIB small business optimism index, PPI, retail sales, business inventories; earnings
WEDNESDAY: Weekly mortgage apps, CPI, Empire state mfg survey, Treasury international capital, industrial production, housing market index, Geithner testifies before House Financial Services, oil inventories, credit card default rates reported
THURSDAY: Housing sales, jobless claims, current account, Philadelphia Fed survey, Fed's Fisher speaks, money supply;
FRIDAY: Consumer sentiment, leading indicators, quadruple witching