Sunday, August 14, 2011

US markets fall for 3rd week in volatile trading

North American markets rose on Friday on better-than-expected US retail sales and a rebound in European stock markets. The S&P 500 rose 6.17 points or 0.53% to 1,178.81. The Dow added 125.71 points or 1.13% to 11,269.02. For the week, the S&P 500 dropped 1.75%, while the Dow lost 1.5%. The S&P 500 has fallen in 11 of the past 15 sessions, for a total lost of 12.4% in 3 weeks.

On Friday, US July retail sales rose 0.5%, the largest increase in 4 months. In addition, the decision by France, Italy and 2 other euro zone nations to band short-selling of financial shares boosted European markets. However, also on Friday, the University of Michigan reading on US consumer sentiment for August was only 54.9, much lower than the 63 expected. It was also the lowest level in 30 years.

Low Initial Jobless Claims Boost Markets

On Thursday, markets received a boost from better-than-expected US initial jobless claims. Claims fell by 7,000 to 395,000, which was lower than the 400,000 that economists expected.

Investors Panic About France

On Wednesday, major stock markets in Europe fell between 3% and 5.5%, while the Dow dropped more than 500 points. It was due to investors panicking about a rumour that France's AAA rating would be downgraded.

Fed Keeps Interest Rates Low For 2 More Years

Markets received a big boost from the Fed on Tuesday, when Ben Bernanke announced that the Fed will keep interest rates low until mid-2013.

ECB Buys Italian and Spanish Bonds

On Monday, the ECB carried out its promise to buy Italian and Spanish government bonds, bringing the yield on 10-year bonds of both countries down to around 5%. However, the Dow ended down by over 600 points on Monday, as markets reacted to S&P's downgrade of the US.

Gold Shines

Gold received a significant boost on worries surrounding the twin debt crises of Europe and the US. On Wednesday, gold reached a record high above $1,800/ounce. On Friday, gold futures settled at $1,742.60. For the week, gold rose $90.80 or 5.5%.

Looking Ahead to Next Week

The fact that US markets managed to post gains on Thursday and Friday is a positive sign. Markets showed signs of stabilizing towards the end of the week. However, if economic data announced this week is weaker-than-expected, markets will tumble once again. In addition, investors will pay attention to talks between the French President and the German Prime Minister. If the situation in France worsens, then markets will likely be pulled lower. In addition, markets would also be negatively affected if Italian and Spanish debt yields increase.

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