What no one wanted a week ago, helped send the US market higher for the first time in six weeks last week, but oil’s sharp 11%-plus fall was the major influence and shouldn’t be under-estimated as having bolstered the market’s confidence at the right time to allow nervy punters to move back into US financial stocks (and those in Australia for that matter, and Europe as well).
If oil continues to ease this week, it will help generate more confidence in US and European markets, but probably not here where easing commodity prices remain a negative.
That’s why the Australian market was jumpy on Friday and why investors here were reluctant to go mad and surge like the US did by over 500 points on the Dow by Friday.
Still, the futures had our market up by more than 1% in trading at the weekend, but they also signalled a solid start on Friday and the physical market ignored the lead and sank by 60 points, or more than 1%. That took the week’s losses to 3%.
Friday was the second miserable Friday’s trading in a row as blood was spilt in most sectors, but especially resources.
Those better-than-estimated results from Citigroup, JPMorgan Chase and Wells Fargo alleviated US concern that earnings will extend their year-long slump, and offset another worrying quarterly loss from Merrill Lynch.
Citigroup’s smaller than expected loss of $US2.5 billion lifted the Dow Jones Industrial Average to the steepest three-day gain since March 2003 as financial shares, the year’s worst performers, rose by a fifth from Wednesday onwards.
The S&P 500 was steady at 1,260.68 on Friday, for a rise of 1.7% over the week, ending the longest stretch of weekly losses in four years.
The Dow average climbed 49.91 points Friday to 11,496.57 but Nasdaq Composite Index fell 1.3% on Friday because of the poorer than expected reports from Google and Microsoft. The Dow added 3.6% over the week to 11,496.57, its best week in three months, while the Nasdaq advanced 1.95%,
The rebound late last week hasn’t eased the grip of the bear market though.
Among the 23 industrialized nations in the MSCI World Index, only Canada has so far managed to avert a bear-market decline of 20% in equities.
US stocks have fared better than European and Asian equities, measured by the performance of broad benchmark indexes.
The S&P 500’s 14% retreat this year, including an 11% drop in the six weeks ended July 11, compares with losses of 17% for the UK’s FTSE 100 Index, 21% for the German DAX Index and 15% for Japan’s Topix Index. The US performance is better than ours: we are off around 22%.
In Europe shares closed up after a three day rally for the first weekly gain since May, after Citigroup’s smaller-than-estimated loss. It was still a loss and the bank is rapidly contracting and will earn less underlying profit this quarter because of the sale of very profitable consumer finance units in Germany.
The Dow Jones Stoxx 600 Index added 1.6%, extending this week’s gain to 3.8%.
National benchmark indexes increased in all 18 western European markets except Denmark (in recession and with a housing finance problem and Norway which was also easier on housing concerns.
London’s FTSE 100 rose 1.7% on Friday to take the weekly rise to 2.2%.
Ireland’s ISEQ Index increased 4.5%, as did France’s CAC 40, while Germany’s DAX rose 1.8%.
The UK is still troubled and a media interview on the weekend by Chancellor Alistair Darling will have done nothing for confidence when he revealed the Government has no extra cash to cushion rising unemployment.
But London papers are reporting that the UK Treasury is changing its borrowing and budgetary rules to allow more room to borrow later in the year ahead of an election due in 2010 or earlier.
Meanwhile figures on Friday show UK mortgage lending fell by 32% in the year to June.
Figures from Britain’s Council of Mortgage Lenders show that during June – traditionally one of the busiest periods in the housing market – gross mortgage lending fell 3% to an estimated £23.8 billion as buyers struggled to secure new home loan deals.
But lending in the first three months of 2008 fell 11% and then that decline more than doubled to a 21% fall in the June quarter. No wonder UK banks are copping a hiding in the markets, with profits under considerable pressure.
In Asia stocks declined for the fifth week out of six with the MSCI Asia Pacific Index down to its lowest point since October 2006, on concern the weakening global economy is hitting earnings and growth prospects, especially in China.
The MSCI Asia Pacific Index fell 3.3% last week to take the year’s losses so far to 18%.
Japan’s Nikkei fell 1.8%, falling for a sixth week. South Korea’s Kospi index lost 3.7% in its seventh weekly decline.
That’s the longest losing streak since June 1996.
In Pakistan, 15 days of declines on the Karachi Stock Exchange 100 Index led to hundreds of investors stoning the building on Thursday and shouting anti-government slogans.
And in China the CSI 300 Index rose 3.6% on Friday but still finished the week down 4.7% over the week, taking its decline this year back to 47%, as a report showed the economy grew at the slowest pace since 2005.
In Australia the market closed in the red despite a firmer Wall Street, with resources stocks dragging the market down.
At the close, the ASX200 index was down 60.6 points to 4840.4, bringing this week’s losses to 3%. The market has now ended in the red for nine consecutive weeks.
Oil’s weakness saw Woodside off $3.00, or 5.1%, to $55.50; Santos dropped $1.30 to $17.90 and Oil Search 44c to $5.00.
Takeover target Rio Tinto fell $
