The US dollar fell, commodities and equity prices jumped and we can look forward to more of the same today and in coming weeks.
The Australian dollar finished at 98.50 USc early Saturday, under the all time high of 99.18 USc, as the greenback ended the week weaker and looking to go lower.
Friday’s weak jobs figures for September have brought closer the possibility that the US Federal Reserve will be forced to engage in another round of spending to try and boost the economy.
If that happens, commodity prices and currencies are expected to go on rising, while investors say the easing will be good for shares.
But it must be pointed out that the previous easing was forecast to do all that, and shares are basically flat over the past year (but up over the past two years). Interest rates have crashed on deflation fears (not inflation), but commodity prices have spiked higher and higher in anticipating of higher inflation.
Which means there could be a whiff of a bubble developing in share prices and commodity pricing that will be pricked if the easing doesn’t happen, or if it does, is shown not to work.
If the Fed doesn’t move closer to easing at its November 3-4 meeting, then the pricking could start then, more in disappointment from anxious investors wanting help, now and not later.
The strength of shares (and many commodity prices) should be questioned because it’s clear that without this looming easing, they would not be where they currently are. There is a definite air of unreality in all valuations at the moment.
The AMP’s chief strategist, Dr Shane Oliver said over the weekend that "While US payroll employment was weaker than expected, US shares rose on Friday as the weak data boosted expectations for another round of quantitative easing to be announced by the Fed next month and Alcoa kicked of the September quarter profit reporting season with better than expected earnings.
"As a result futures trading on Friday night points to a 22 point (or +0.5%) gain in Australian shares when the market re-opens on Monday.
"Solid gains in commodity prices suggest that the gains will be led by resources stocks.”
The US dollar fell to more 15 year lows against the yen and that contributed to much of the strength in commodities. Gold hit more highs and had its fourth up week.
The Dow closed above the 11,000 mark for the first time in five months.
The index rose 57.90 points, or 0.53%, at 11,006.48. The Standard & Poor’s 500 Index added 7.09 points, or 0.61% to 1,165.15. The Nasdaq Composite Index rose 18.2 points, or 0.77% to 2,401.91.
For the week, the Dow added 1.6% as did the S&P 500, while the Nasdaq rose 1.3%.
Wall Street is up around 5.6% for the year so far.
In Europe the Stoxx 600 Index rose 1.2% last week to be up 3.3% for the year and 13% from its 2010 low in May.
Markets rose in 18 major western economies.
Germany’s DAX Index added 1.3%, London’s FTSE was up 1.2% and France’s CAC 40 jumped by almost 2%.
In Asia the MSCI Index was up 2.4% for the week, its sixth week of gains and touched a two year high on Thursday.
Hong Kong’s Hang Seng Index jumped 2.6% (boosted by the Moody’s decision on China’s rating) and South Korea’s Kospi index rose 1.1%.
Tokyo’s Nikkei jumped 2.6% and The Shanghai index was up 3.13% on Friday and for the week.
Australia will open up around 20 points today on the ASX 200 after overnight trading on Saturday.
On Friday Australian shares closed with modest falls, led by banks and gold miners.
The S&P/ASX200 index ended the day down 10 points, or 0.2%, at 4681.3 points, while the All Ordinaries fell 5.9 points, or 0.1%, to 4740.3 points.
The ASX200 added 2.2% for the week.
