U.S. markets rose on Friday, as
investors expected Spain to ask the euro zone for a bailout on
Saturday for its troubled banking system. On Friday, the S&P 500
climbed 10.67 points or 0.81% to 1,325.66. Meanwhile, the Dow gained
93.24 points or 0.75% to 12,554.20. For the week, the S&P 500
jumped 3.7%, while the Dow gained 3.6%.
One week after the S&P 500 lost
6.3% in May and dropped below its 200-day moving average, the index
posted its strongest weekly gains so far in 2012.
Euro Zone Agrees to Bailout For
Spain
Today, the 17-member euro zone has
agreed to a 100 billion euro bailout for Spain's banks. This was
larger than the amount that the market expected, and followed a 2.5
hour telephone meeting among euro zone finance ministers. On Friday,
a report by the IMF had indicated that Spain needed 40 billion euros
to inject into its banks. The bailout is likely to erase the
market's concerns about Spain, at least in the short term.
Spain Troubles World Markets
Prior to Sunday's bailout announcement,
the situation in Spain dogged U.S. markets for the entire week. On
Friday, Fitch downgraded Spain 3 by botches, from A to BBB. The
agency also gave Spain a negative outlook, meaning further downgrades
are likely. In addition, Moody's warned that Spain and other euro
zone nations were at risk of a downgrade. On Tuesday, following a
meeting of G7 finance ministers, Spain indicated for the first time
that it was asking for assistance from the euro zone.
China Cuts Interest Rate By
Quarter-Percent
After a slew of data indicated a
slowing economy in China, the country's central bank cut interest
rates by 0.25% on Thursday. It was the first rate cut in 3 years,
and caused markets to rally.
Ben Bernanke Offers No Hints of QE3
Testifying in front of the U.S.
Congress on Thursday, Federal Reserve Chairman Ben Bernanke said the
Fed was ready to take action, but offered no details or promises on a
new round of stimulus. As a result, markets posted reduced gains
following Bernanke's statements, after recording strong gains
following China's rate cut.
Looking Ahead to Next Week
Markets will likely receive a strong
boost on Monday, following Spain's 100-billion euro bailout. The
focus in the euro zone will shift back to Greece, as investors
anticipate the June 17 elections. Thus, U.S. markets are likely to
head higher this coming week.
Investors will also be paying attention
to China, with recent data indicating a slow-down in the economy.
With May CPI in the country falling to 3%, it gives policy makes room
for stimulus. Thus, investors will look for hints of further
stimulus in the country. In the U.S., economic data to be released
in the coming week includes the PPI and retail sales on Wednesday.
CPI and initial jobless claims are scheduled for Thursday. The
Empire State manufacturing index, U.S. industrial production and the
June reading of consumer sentiment from Thomson Reuters/University of
Michigan are expected on Friday.
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