Sunday, May 15, 2011

US markets fall for 2nd week on commodities

US markets fell on Friday on the falling price of commodities. The S&P 500 fell 10.88 points or 0.81% to 1,337.77. The Dow dropped 100.17 points or 0.79% to 12,595.75. For the week, the S&P 500 fell 0.2%, while the Dow lost 0.3%. 

Stock markets ended down for the week due to concerns about weak US economic growth, tightening measures in China and a continuing crisis in the euro zone. Some investors were also concerned about the imminent end of QE2 at the end of June.

China raises RRR

On Wednesday, China announced that April CPI rose 5.3%, higher than markets expected. Despite only 0.1% higher than March's reading, it was the second consecutive month above 5%. As a result, the next day, China raised the RRR (reserve requirement ratio) at banks by 0.5%, bringing the RRR at major banks to 21%. The moved weakened commodity prices.

Greece at centre of attention

Greece was the focus of euro zone concerns this week. While Greek government officials repeatedly tried to assure investors that a restructuring or default are not going to happen, investors continue to be concerned that it is inevitable. There were also rumours that Greece wants to leave the euro zone.

Looking ahead to next week

Commodities have tumbled in the past 2 weeks, and could continue to do so next week. Investors' concerns about a weak US economic growth, tightening in China and the euro zone crisis continue to exist, which could push markets lower next week. The end of QE2 at the end June is also a concern for investors. QE2 has been a major reason for the sharp rise in the markets since August, so its end could have a very negative effect for markets.

Investors will also be focusing on US economic data that will be announced next week, to get a reading on the strength of the US economy.

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