29 July 2012: Week in review

Markets– Stocks rally as Eurozone fears ease: Positive comments regarding the single currency Eurozone provided impetus for stocks to end the week in a bullish mood. After the week started on a negative note on the back of disappointing data, comments from ECB chief, Mario Draghi stating that a mandate allows ECB to prohibit excessive borrowing costs eased some fears. Also, UK’s AAA rating added to ease worries further.
•    Stocks: FTSE All World jumped 1.9%, as FTSE Eurofirst finished 1% higher on Friday after leaping 2.4% on Thursday; Higher Beta markets in Asia also capitalised, and FTSE Asia Pacific gained 2.1% and Tokyo’s Nikkei gained 1.46%; S&P 500 closed with a gain of 2%; FTSE 100 finished almost 1% higher at 5627
•    Currencies: Euro rallied to touch $1.2389; Sterling against dollar was unchanged at $1.5746
•    Debt: The German Bunds have gained 4bp to sit at 1.37% while US 10-years gained 12bp to 1.53%; Spanish bond-yields finally dropped under 7%
•    Commodities: Brent Crude is up 1.27% to $106.47/barrel; Copper recovered 1% to sit at $3.43/pound; Gold almost flat at $1613/ounce

Global Economy

•    US economy slows down: Results during the week revealed that the US economic growth slowed down to 1.5%, which is being described as a ‘worrying loss of momentum’. The drop in growth will now struggle to reduce unemployment. Domestic consumption, which is the largest component of the GDP grew a feeble 1.5%

•    S&P rates UK as AAA: Post rating UK a AAA credit, S&P affirmed it, despite dismal economic figures from the UK this week. S&P argued that the economy would be able to recover later in the year, and that also UK benefits from a central bank which is able to buy  government debt, unlike most eurozone members.

Companies

•    Debt crisis punishes eurozone industrials: Most industrial players such as Saint Gobain, Renault, and Lafarge have reported dip in earnings for the first half of the year. These companies are suffering as customers cut capital spending, causing the companies to look for ways to cut costs.

•    Barclays embroiled in second controversy: Barclays has revealed both, a new probe by regulators into a controversial capital raising in the middle east, and also a £450 million charge for mis-selling of hedging products.

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