A few hours of peace on Friday in Asian trading was again replaced by a finishing panic on Wall Street as markets faded back into the red in a funk over the Fed’s quantitative easing.
For the third Friday in the past four, Wall Street ended with losses – even the big gain of the previous Friday after the solid May jobs report didn’t last past Monday night.
The background to last Friday’s fade was a bit different to previous weeks and days in that while equities ended weaker, gold and oil and other commodities perked up.
Our market will open weaker after Wall Street’s fade – the Share Price Index futures contract should show a 26 point fall at the opening this morning.
That will come as a shock to the bulls who chased shares in Friday’s 1.9%, $30 billion rally. It seems to have been a one day wonder.
That rally left our market 1.1% higher for the week. Bank shares rallied strongly on Friday after a week or more of weakness. That will be tested today.
The rest of Asia rose strongly on Friday, but that gain petered out in Europe and then the US, and the mood will be back to a volatile, gloomy outlook until the end of the Fed meeting early Thursday.
The Aussie dollar dipped to 95.70 USc in late trading after maintaining the 96c level for much of the day.
For the week, the Dow fell 1.2%, the S&P 500 slid 1% and the Nasdaq lost 1.3%.
The S&P 500 is down 2.5% since May 21, but there have been short-lived rallies in that period. Since the start of the year, the S&P 500 index is up 15%.
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Oil rose on Friday and ended the week 1.9% higher because of renewed tensions around Syria. August gold futures rose Friday, settling at $US1,387.60 an ounce on Comex.
July silver rose on Friday, settling at $US21.954 an ounce, up 0.9% on the week.
The AMP’s Dr Shane oliver says, "It’s too early to say that the falls in shares are over, however we remain of the view that it’s just a correction and that the broad cyclical trend remains up.
"Shares are far from expensive, monetary conditions are likely to remain very easy with interest rate hikes a long way off and the gradually strengthening global growth outlook points to stronger profits ahead. So by year end we see further upside in global and Australian shares.
"While bond yields have moved up too far too fast lately given the outlook for short term interest rates, sovereign bonds are fundamentally vulnerable as improving global growth will likely see yields gradually move higher.
"The $A seems to be finding support around $US0.94-95 and could have a decent bounce given now large short speculative positions. However, with commodity prices in a downtrend and the outlook for the Australian economy deteriorating relative to the US, it’s likely the $A is ultimately headed lower.
"Given its overvaluation in terms of relative prices, expect the $A to head towards $US0.80 over the next few years.
"While Eurozone shares rose 0.4%, paring a decline over the week to 1.7%, the US S&P 500 slipped 0.6% partly reversing Thursdays 1.5% gain and leaving the US share market down 1% over the week.
"This came as the IMF warned the Fed to carefully manage its exit from quantitative easing. Reflecting the weak US lead, ASX futures fell 26 points or 0.5% pointing to a soft start to trading for the Australian share market on Monday after a 2% surge on Friday."
