Sunday, February 13, 2011

Markets rise on resolution of crisis in Egypt

US markets rose on Friday after Egyptian President Hosni Mubarak stepped down. The S&P 500 rose 7.28 points or 0.55% to 1,329.15, while the Dow gained 43.97 points or 0.36% to 12,273.26. For the week, the S&P 500 was up 1.4%, while the Dow gained 1.5%. 

Investors were relieved to see a resolution in the crisis in Egypt. The president also stepped down before things deteriorated further in a nation with the Suez Canal and oil pipelines.

Oil and gold weaken

With a resolution of the situation in Egypt, the price of oil and gold fell. NYMEX crude fell $1.15 or 1.33% on Friday to $85.58, its lowest level since November 30th. Meanwhile, gold futures fell $2.10 or 0.2% to $1,360.4/ounce.

China raises interest rates again

On Tuesday, China raised interest rates once again to cool the country's inflation. It was the third interest rate hike since tightening measures began in recent months. The 1-year savings rate was hiked by 25 bp to 3%, while the lending rate rose 25 bp to 6.06%.

Germany and France not getting support

Germany and France are pushing for other euro zone nations to adopt their proposed competitiveness pact. The agreement includes indexing wages and guarantees on debt limits. Germany has agreed to boost the EFSF (European Financial Stability Fund) if the other euro zone members accept the deal. However, other nations are opposing the changes that the agreement would bring.

Outlook for this week

With a 27% rally in the S&P 500 since late August, it appears that markets are running out of good news. The interest rate hike in China on Tuesday is the perfect example of the strong inflation occurring in emerging markets. Governments are trying desperately to clamp down on inflation, and the result will weaken economic growth. While the euro zone has been quiet in recent weeks, bad news could emerge from the region at any time. Thus, investors can expect markets to move sideways and lower this week.

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