Sunday, April 3, 2011

US markets rise on employment data

US markets rose on Friday on a stronger than expected jobs report. The S&P 500 gained 6.58 points or 0.5% to 1,332.41. The Dow rose 56.99 points or 0.46% to close at 12,376.72. Both indices are near their June 2008 levels. For the week, the S&P 500 rose 1.4%, while the Dow added 1.3%.

On Friday, the US Labor Department reported that 216,000 non-farm jobs were added in March, higher than the 190,000 economists expected. In addition, the unemployment rate fell from 8.9% to 8.8% in March. It has fallen 1% since hitting 9.8% in November 2010.

The improving employment boosted oil prices. On Friday, Brent crude futures rose $1.34 to close at $118, while WTI crude gained $1.22 to $107.94.

US housing still weak

The US housing market is still extremely weak. A report on Tuesday showed that house prices fell for a 7th month in a row in January.

Multiple downgrades hit euro zone

The euro zone faced a long list of bad news this week. On Monday, Portugal's 10-year government bonds broke the 8% barrier to yield 8.17%, another record high. On Tuesday, S&P downgraded Portugal to BBB-/A-3 from BBB/A-2. S&P also downgraded Greece on the same day, from a BB+ to BB-. The agency stated that Greece will need more money on top of the €110-billion it received in its bailout last year.

On Thursday, Ireland's central bank stated that the country's banks will need a further €24-billion. On Friday, Fitch downgraded Portugal to a BBB-, despite a successful bond sale.

Looking ahead to next week

Investors will be listening closely to Federal Reserve Chairman Ben Bernanke on Monday. Whether or not QE2 is fully executed until the end of June, and whether QE3 will occur are significant factors for the markets. The S&P 500 has risen 27.2% since Bernanke hinted at the start of QE2 on August 27. Thus, speculation that QE2 would end prematurely, or that QE3 will not occur can push markets down significantly. Meanwhile, if QE3 is implemented after June, that would continue that trend in markets that has been occurring since August.

Troubles in the euro zone are not decreasing in number. In fact, the problems have been increasing in recent weeks, in a situation that is quite similar to what happened at exactly the same time in 2010. While US markets have been extremely resilient in the face of euro zone troubles, that may not continue going forward.

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