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.
Markets were in pre-festive mood and trading was drifting in low volumes – even US macro data signaling move towards recovery failed to excite markets. In Europe there were mixed effects stemming from the support by the Chinese authorities and the downgrade of Portugal. KSA hit a 7-month peak after the 2011 budget was announced. The euro fell for a third-straight week against the USD and the yen on the rating downgrades. Oil closed at $90 on Fri – the highest in more than two years due to cold weather, sharply lower US inventories and the OPEC’s decision to keep oil output unchanged, while gold continued its rally.
Markets were relatively quiet this week, with the exception of Europe where the Moody’s action on Spain and Greece (placed on credit review for possible downgrade) and Ireland (downgraded by 5 notches) took its toll. Regional markets had an eventful week - Qatar stocks hit a new 26-month high (Tues) and DFM touched a 13-week low (Wed); compared to a week ago all markets bar Saudi closed at a lower level. The euro continued to fall against the dollar, while the pound fell after UK inflation and unemployment rose. Gold was volatile, closing lower compared to a week ago while oil prices are still hovering around the $87-90 band.
Markets are giving a warm reception to the US tax deal and made gains globally, although EM were on a softer tone. Regional markets were up, with Qatar benefitting the most after winning the World Cup bid. Higher US Treasury yields supported the dollar, while both oil and gold weakened.
Markets worldwide were hit by the Irish fiasco and the liquidity absorption measures in China but later in the week they recovered. Regional equities are mirroring emerging markets with Qatar stock in a celebration mood for the 2022 World Cup. A flight to safety is benefitting US Treasuries and the dollar, despite rebound of the euro and the yen, while oil and gold are again on the rise with oil closer to 90$/b.