Sunday, December 4, 2011

US Markets Post Largest Weekly Gains Since March 2009

US markets edged lower on Friday, after posting their largest percentage weekly gains since March 2009. On Friday, the S&P 500 closed lower by 0.30 point or 0.02% to 1,244.28. The Dow slipped 0.61 point or 0.01% to 12,019.42. For the week, the S&P 500 soared 7.4%, while the Dow climbed 7%.

US Unemployment Falls to Lowest in 2.5 Years

On Friday, November US unemployment rate was lower than expected, as it fell from 9% to 8.6%. It was the lowest level in 2.5 years, and it beat the lowest estimate from a Reuters poll of 67 economists, which was 8.9%.

6 Central Banks Add Liquidity to World Financial System

On Wednesday, as banks in Europe faced a liquidity crunch due to their exposure to euro zone debt, 6 Central Banks added US dollar liquidity to the world financial system. In addition, China slashed its RRR (reserve requirement ratio) for banks by 50 basis points. As a result, the Dow rallied 400 points on Wednesday.

Looking Ahead to Next Week

On Monday, French President Nickolas Sarkozy will meet with German Chancellor Angela Merkel to discuss changes to the EU Treaty. On Friday, the 27 members of the EU will have to vote on the changes in a summit. With Italian and Spanish 10-year yields close to the unsustainable level of 7%, investors have pegged Friday the 9th as the last day to save the euro zone.

With such important developments occurring next week, markets will likely be extremely volatile. Since the debt crisis started in early 2010, EU leaders have shown time and time again that they are indecisive. Thus, markets could head lower in the early half of next week if euro zone leaders are unable to quickly reach agreement. However, if they are able to reach a deal on Friday, world markets will likely soar. If leaders in Europe are unable to reach a deal on Friday, it becomes more likely that the ECB will have to conduct a massive round of quantitative easing to save Italy and Spain.

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