As the stocks began to recover from their recent sharp losses and the dollar steadied itself on Friday, even though both were expected to decline for the fourth straight week, talks about the US Federal Reserve (which happens to meet next week) may have something to do with this recent up rise.
The agenda of the meeting is to discuss a reduction in bond buying later in the year, which has sparked a selloff not only in local, but global markets as well. This week it has bruised not only emerging market assets, bonds, stocks, but has also battered the dollar.
The U.S. currency continued to be sluggish against both the euro and the yen on Friday, but had gained a footing against the Japanese unit, which was around 95 yen, but was at an all time 2 month low at 93.75 the previous day.
With the unexpected U.S. retail sales data rising overnight, and with the impact of selloffs on riskier assets beginning to settle, the market noticed some degree of relief. In fact, the European stocks rose to 0.3% as they followed a rebound from the Asian shares.
The markets have been panicky because of the idea that the Federal Reserve could start pulling in its support, which has been known to increase asset prices over the past 4 years. However, Philippe Gijsels, who is head of research at BNP Paribas Fortis Global Markets, said that growth seemed a bit patchy; he wasn’t expecting the Fed to move till the end of the year.
“If you have easy monetary policy and improving economic conditions, which will also help companies to produce good earnings, … then you have a lot of the building blocks in place (to drive stock market gains),” he added.
Most of the major stock markets including the MSCI’s world index have substantially fallen for 4 straight weeks now; along with Europe right on course with a drop of 1.5% this week, Japan’s Nikkei is still trying to recover from its losses of a 15% fumble since mid-May, despite rising 2% on Friday.
The Japanese stock market has been on a constant roller coaster ride; being hurt by the stimulus has caused worries that have unveiled the government’s pro-growth package.
In Europe’s own debt market, the southern euro zone bonds in particular were back on top after a turbulent session, which includes the German bonds that rose up 43 ticks adding to this week’s gain. Standard and Poor’s rating agency helped the euro zone margin by keeping Spain’s debt over the ‘junk’ status, even though it does leave the country at a risk of being downgraded since it will be maintaining a negative position on the bonds.
Commodities, including metals have been avoided because of the striking swings seen by currencies and equities this week. However, they too were affected by the stimulus concern by the Feds.
Copper had edged itself up to $7,094 a ton, after recovering from a six week low drop on Thursday, while precious metals such as platinum and gold lingered on their recent lows.
Brent Crude rose up to $105 a barrel for the first time in recent months, even though analysts had suggested that the volatile dollar would have its impact.
According to Ric Spooner, Chief market analyst at CMC Markets, “The key driver of oil has been the weakness in the dollar rather than any fundamental factors,” he further went on to say that, “Traders are wary about pushing things higher because they are confronted with a situation of plenty of supplies when seasonal demand is supposed to pick up”.