At the beginning of the week stock markets worldwide extended the tumble recorded the previous Friday. Then after a few days dominated by a declining trend, ECB President Mario Draghi declared that the central bank is “ready to do whatever it takes” within its mandate to preserve the single currency and the tensions on the markets eased. Regional markets were mostly down with Saudi bourse bucking the trend. The euro made gains last week while the dollar advanced against the yen. Gold prices hit a 3-week high on Draghi’s statement while oil prices rebounded.
Another week, another EU Summit. Bundeskanzlerin Merkel in a TV interview asserted that support to EU periphery without strong conditions and control over the use of resources is out of question. More concerns about faltering economic growth led to strong dip in global stocks while in the Middle East some markets were helped by strong corporate earnings results. The euro has oscillated wildly against the dollar and especially after Merkel’s remarks, fell sharply - closing last week at a two-year low against the dollar and at the lowest against the yen since 2001. Oil prices continue to increase on tensions in the Middle East while gold prices edged up on Fri but posted a weekly loss.
The EU Summit bank recapitalisation deal led to a much needed boost in global equity markets. Though regional markets were mixed, the Presidential election results in Egypt led to a surge in the Cairo exchange. Following the EU Summit outcome, the euro recorded its biggest daily gain in the past eight months, oil prices increased and so did gold, with the latter posting its biggest gain in 6 months.
The European deal on the new Greek plan and the changes in the EFSF and ESM have not allayed fears in the market which have resumed to the downward trend. Markets continued to remain volatile as the US continues to be in a stalemate regarding the debt ceiling debate so close to the Aug 2 deadline. Regional markets mirrored their global counterparts. The two uncertainties led to a weaker dollar, an all-time record high for the Swiss franc, drove up demand for the yen and caused a gold price rally, which rose to a high $1631.2 per oz.
The Greek bail-out resolution and stellar Q2 results from big firms like Apple led to an end-of-the week rally in most markets, but traders remain anxious with the tug of war between US lawmakers to find solutions to avert an unprecedented debt default on Aug 2. Upbeat global sentiment is likely to boost regional markets that were on the decline last week, mirroring Saudi's gain yesterday following the news about the liquidity support offered to Greece. The Euro rose to a two-week high against the dollar as investor confidence went up, but the rally has since faded. Both oil and gold prices were up last week, with oil hitting a 3-week high and gold surged past a historical $1600 an ounce mark.
The contagion of the EU fiscal crisis reached Italy, the third largest sovereign bond market in the world. Stock markets are shaky and risk aversion rising. Regional markets were not immune to global events: all markets were down from a week ago. The euro dropped to a four-month low against the US$, before stabilising later. Oil prices remained volatile last week while gold surged on the US sovereign rating warnings.
The fluctuations driven by the negotiation over Greek rescue program have abated. With the dust settled, the attention has turned to the macroeconomic fundamentals, the lack of momentum, and the other fiscal crises in the US and Eurozone. Hence the new drop in stock markets after the end-June mini rally. Regional markets are in summer mood with minimal volumes, with investors remaining cautious ahead of Q2 earnings. A weaker dollar led to safe haven demand for commodities, including gold.
Equity markets got some respite due to strong US data and cheerful news from Greece especially the “voluntary rollover” accepted by French banks and the austerity program passage in Athens. The mini end of month rebound & reappearance of risk appetite does not alter the outlook much, which remains dominated by a downward trend. The euro surged on positive news from Greece while the pound dropped to a 16-month low against the euro. The Brazilian real is at a 12-year high against the dollar as foreign investors flock to the region, given its high interest rates. Oil rebounded after the IEA stock release effect waned, while gold seems to have topped for now.