Equities and other financial markets will start the week cautiously after Friday’s nasty little fall in the US and rise in interest rates.
Ten year bond yields rose 0.08% to 3.49% and yields on two year treasuries rose above 1% for the first time this month on Friday.
America is looking to raise $US123 billion in four auctions this week that will again test the confidence bond markets have in the credit worthiness of the US and the outlook for economic growth.
For a variety of reasons, the outlook for markets has gotten a little hazy, despite expectations that this week will see the US climb out of recession with the first estimate of third quarter economic growth.
But that could be cold comfort to markets now increasingly uneasy with the size and the speed of the rebound across all types of assets, from metals like copper and gold (and iron ore) to bonds, equities, dodgy home loans and house prices in some parts of the US.
Corporate bonds and junk securities have soared in value, as have emerging markets.
Last week however there were some niggles: oil reached $US82, setting off concerns about the impact on US consumers in particular those whose spending power has been ravaged by the recession, still rising unemployment and falling wages and working hours.
Even though China and Asia are growing strongly, the rest of the developed world is still flat.
The UK realised on Friday that the economy shrunk again in the September quarter with a first estimate suggesting a fall of 0.40%, after a fall in the March quarter.
The UK is now gripped by the longest recession since the 1930s and some commentators have taken to calling it a depression, not for its intensity, but for its length and the bleak nature of what is happening in the economy itself.
And now there are signs of problems in the tanking US commercial property market (see story above), all of which will make investors a bit touchy about the sector and banks.
Big oil groups reporting in the US and Europe this week will produce terrible figures because oil prices and their earnings peaked in the 3rd quarter of a year ago.
So while that’s not a recipe for a market meltdown, it could cause a rise in investor nervousness.
That’s why Friday’s fall on Wall Street was nasty: it came after good earnings figures for Apple earlier in the week and then Amazon, and solid home sales numbers.
But investors took profits and the fall took the US market down for the first week in three.
For the week, the Dow fell 0.2%, the S&P 500 shed 0.7% and Nasdaq dipped 0.1% as the tech sector powered on, buoyed by Apple and Amazon’s solid earnings.
The S&P 500 is still up 60% since hitting a 12-year closing low on March 9. The S&P 500 is up around 2% so far this month.
The US dollar rose against the pound after data showed the UK posted its sixth straight quarter of contraction in growth, the longest stretch on record.
The dollar’s strength helped push oil and commodity prices lower, sending shares of companies in the energy and materials sectors down.
The Dow dropped 109.13 points, or 1.08%, to 9,972.18, pushing it down under the 10,000 mark for a second time in the week.
The S& P 500 dropped 13.31 points, or 1.22%, to 1,079.60. Nasdaq dropped 10.82 points, or half a per cent, to 2,154.47.
The MSCI Asia Pacific Index fell 2.6% last week and trimmed the gains since March 9 to 69%.
China’s Shanghai market rose for the third week in a row after the sold third quarter economic figures.
Our ASX200 rose half a per cent. Tokyo’s Nikkei rose 0.3%. Hong Kong’s Hang Seng Index added 3%.
The ASX200 index was up 46.6 points, or 1%, on Friday to 4859.4.
The All Ordinaries rose 40.9 points, or 0.9%, to 4859.7.
European markets fell over the week.
The Dow Jones Stoxx 600 Index eased 0.5%, trimming a 1.4% gain during the day as European markets got caught up in the mid day weakness in US markets.
National benchmark indexes fell in 13 of the 18 western European markets. Germany’s DAX lost 0.4% and France’s CAC 40 slipped 0.3%.
London’s added 0.7% in spite of the shock economic growth figures.
Shares rose on hopes the Bank of England will have to increase its bond purchase plan next month, thereby pumping more money into the economy.
Over the week, Germany’s DAX eased 0.1% and France’s CAC 40 fell 0.5%.
The FTSE 100 rose 1% and had its third up week in a row.
In commodities, oil, gold and copper had mixed weeks.
But oil attracted the attention with the move through the $US80 a barrel level as the US dollar weakened.
Friday saw the greenback rise and oil sold off.
Nymex December crude in New York ended down 69 cents a barrel at $US80.50, while Brent crude dropped 59 cents to settle at $US78.92.
Oil prices had risen to a one-year high of $US82 earlier in the week, rallying more than 10% in a week.
That came as world share markets rose and the US dollar fell to a 14 month low (again) against major currencies.
The dollar firmed against the pound after the poor third quarter economic figures for the UK.
Gold was up around 0.4% over the week at $US1,056.40 an ounce in New York.
Sugar fell, but cocoa hit a new 30 year high on crop fears in west Africa.
Cocoa prices hit $US3,412 a tonne in New York, up 4.2% over the week.
Liffe March cocoa was up 3.7%
Sugar’s March raws contract on ICE lost 2.6% at 23.28 US cents a pound while London’s Liffe December white sugar also lost
