The Christmas week brought some relief to market tensions, following the euro area‟s pledge to inject EUR 150bn in bilateral loans to the IMF, but especially after ECB lent a massive EUR 489.2bn (19.6% of total assets) to banks at 3-year maturity, and the stellar placement of sovereign debt in Spain. End year squaring and low liquidity however blur the picture. It was a mixed week in the regional markets, with Aldar‟s delisting talks bringing the UAE markets down to multi-year lows, while Saudi Arabia and Qatar closed higher compared to a week ago. In currencies, Sterling registered an 11-month high against the euro and the euro was slightly higher against USD. Oil prices are back up to last week levels, on growing tensions in Iran (tougher US sanctions) and Iraq (domestic political infighting). Gold price is meanwhile marking time waiting for the QE3.
Markets were mostly down from a week ago, as Eurozone sovereign debt fears continue to play out, with ratings downgrades and warnings of potential downgrades by rating agencies. Regionally, the failed MSCI reclassification bid by UAE and Qatar dampened spirits and led to a decline in markets. Downgrade fears and decline in risk appetites led the dollar to its highest level in 11 months, boosting its status as a safe haven. As the dollar stature gained, commodity prices dropped: gold was down to the lowest level in 3 months.
Stock markets were in an upbeat mood waiting for some breakthrough from the EU Summit. But the press conference by ECB President Draghi spooked the enchantment by reminding that many banks remain unable to sell their debt into the market and face a large refinancing hump next year. Draghi also asserted that no large scale debt monetization will take place over the foreseeable future in the Eurozone. The conclusion of the EU Summit reiterated this orthodox stance. Structural reforms are the priority. Regional markets are likely to open higher this week, if Saudi market reaction to the EU Summit is taken as a proxy - Saudi markets rose to the highest level since August yesterday. The euro rose against the dollar post-EU Summit and commodities were generally lower, with both oil and gold prices down - the latter by almost 2% from the previous week.
Stock markets had the best week in three years on hopes that an agreement on the new governance framework of the euro area is imminent. Another catalyst for a rebound was the decision among 6 central banks, including the ECB and the Fed, to extend existing cheaper USD swap lines for banks to boost liquidity and ease strains in financial markets. Intra-euro bond spreads narrowed and were less volatile. The situation is however in a flux with developed markets in search of catalysts and emerging markets trying to decouple. Regional markets have been somewhat more resilient of late, with the expectations of an MSCI upgrade for the UAE and Qatar into emerging market status the most expected news in the coming two weeks. The euro had a positive week, rising against the dollar, while both oil and gold prices increased from a week ago.
Last week, ending with US Thanksgiving turned out to be a disastrous one for equity markets globally – Wall Street and Asian markets recorded their the worst weekly performance since Sep, Nikkei 225 hit the lowest level since Apr 09, Dubai stocks hit a 7-year low and the Egyptian bourse closed at its lowest in more than two and a half years. Sterling fell to a seven-week low while the Indian rupee continued to be one of the worst-performing emerging market currencies against the dollar. The worsening global outlook led commodity prices down, with aluminium prices falling below $2k a tonne for the first time since 15 months.
A dismal week for markets despite positive data from the US, as Eurozone’s political tensions continue to hurt investor sentiment and Spanish elections take centre stage. This was reflected in regional markets as well with most indices down almost 1% from a week ago. Dollar strengthened (dollar index up +1.5%) and the euro came under pressure while haven demand helped the pound; Indian rupee fell to a 32-month low sliding to 51.20 against the dollar. Commodity prices were mostly lower last week, with gold down by almost 4%.
The markets continued to be volatile in the backdrop of the dramas in Greece and Italy, with Italy’s 10-year debt soaring dangerously close to and above 7% last week - also driving euro to its lowest level against the dollar in a month. Risk appetite gradually improved on Friday with indications of political change suggesting greater likelihood of reforms, including austerity packages, leading to a market rally as Eurozone debt fears eased. Regional markets were mostly down last week, but the positive sentiment in Saudi market yesterday is likely to reflect in its regional counterparts’ behaviour today. The euro was down almost 0.3% compared to a week ago, while gold and oil prices were helped by the softer dollar.
Agreement to avoid a Greek default & boost the EFSF was hailed by stock markets all over the world. The Standard & Poor’s 500 Index jumped extending the biggest monthly rally on record since 1974 pushed also by encouraging US GDP figures. On Friday, however, concern that the post-EU euphoria went too far, drove indices down. When details of the agreement are clear, enthusiasm will give rise to a more nuanced assessment. Regional markets followed the global trend and recorded gains as progress in the EU boosted risk appetite. Major currencies gained against the USD with yen reaching a record high of JPY 75.64. Oil price was positively affected, with WTI picking up faster than Brent and gold prices were up 6.0% on a lower dollar.
Stock markets received a German cold shower by Angela Merkel who expressed skepticism on a quick recapitalization of the banking system in Europe and another round of downgrade for Spain and Italian banks shook further the precarious situation. The gains recorded in the last two weeks were eroded across the globe with emerging markets being somewhat more resilient. All eyes are on the EU Summit for further direction. Regional markets however were mostly on the defensive, despite the resilience of oil prices. Currency markets were marking time while the yen hit new highs.
The markets were mostly positive last week, in spite of Spain’s downgrade by S&P, given the support of Trichet’s call for quick and coordinated action on bank recapitalization decided in principle between Merkel and Sarkozy (due to be finalized at the EU summit next week) and Wall Street closing on a high, boosted by optimistic data and financial results. Regional markets painted a mixed picture - with all eyes on Q3 financial results. Currencies strengthened against the dollar - the euro rallied while the yen was the weaker performer among major currencies. Oil prices jumped to a month’s high on tight supply and the weaker dollar as gold prices were up 2.6% from a week ago.