World Week Ahead: Europe dogged by credit concerns, Fed meets

Monday 14th December 2009

Credit concerns are expected to dog European markets for another week, while U.S. investors wait for further signs of the outlook for interest rates after the Fed’s key policy committee meets on Tuesday and Wednesday.

Both Greece and Spain were hit by rating worries last week after comments by Standard & Poor’s and Fitch served notice of fiscal imbalances. Speculation has risen that more countries may soon find themselves on watch for credit downgrades in the aftermath of efforts to shore up the financial sector in the wake of the credit crisis and Dubai’s debt woes.

In the U.S., the focus has shifted to the direction of interest rates. While the jury is still out on when rates will rise, investors were confronted with the clearest signs yet that growth has returned to the world’s biggest economy.

The Dow Jones Industrial closed on Friday up 0.63% at 10,471.50 and the Standard & Poor’s 500 edged 0.37% higher to 1106.41. The Nasdaq dipped 0.03% to 2190.31. For the week, the Dow was up 0.8%, the S&P was near flat and the Nasdaq shed 0.2%.

Shares got a late push from the U.S. House of Representatives which voted on Friday to bolster the financial system with tighter regulations. Bank of America gained 2.8%. Mining stocks advanced after JPMorgan lifted its price target on five companies in the sector, including Alcoa and Freeport McMoRan.

Alcoa shares surged 8.2%. Delta Airlines rose 13.9% and US Airways gained 10.5% on hopes from executives for a better 2010.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ fell 3.3% to 21.59.

The Dow Jones Stoxx 600 Index lost 1.6% last week, the steepest drop since November 20. Stocks in Greece and Spain, amid sovereign credit rating concerns, fell the most. Banks, including National Bank of Greece and Banco Santander SA, took the brunt of the declines.

On Friday, the FTSE 100 rose 0.33%, Germany’s DAX advanced 0.83% and France’s CAC 40 was up 0.14%.

As noted earlier, last week was a positive one for the U.S. economy as more reports pointed a strengthening recovery.

On Friday, the Commerce Department said retail sales rose 1.3% in November, the biggest gain since August. It also exceeded expectations of a 0.7% increase. And there was another sign that the U.S. consumer was in a better mood.

The Reuters/University of Michigan Surveys of Consumers' preliminary index of sentiment for December rose to 73.4, just a touch below the year's high set in September, from 67.4 in November. Economists had expected a reading of 68.5.

Bolstering the chances of stronger growth in the final three months of 2009, U.S. business inventories unexpectedly rose in October for the first time in more than a year, a second report on Friday from the Commerce Department showed.

The Dollar Index, which the ICE futures exchange uses to track the greenback versus currencies including the euro, yen and pound, increased 0.7% to 76.574 in New York. It extended its weekly gain to 0.9%.

The U.S. dollar appreciated 0.8% to US$1.4613 per euro. It touched US$1.4586, the strongest level since October 5, and extended its weekly rally to 1.6%, the biggest in more than a month. The dollar rose 1.3% to 89.35 yen. The yen slid 0.2% to 130.57 per euro.

Interest in U.S. Treasuries slipped for a second week as indicated in weak demand for last week’s auctions of US$74 billion of notes and bonds.

The difference in yield between 2-and 30-year securities widened on Thursday to the most since at least 1980 as investors bet the Federal Reserve will keep interest rates lower for longer while the government sells more longer-maturity debt, Bloomberg News reported.

The 10-year note yield climbed six basis points to 3.55%, according to BGCantor Market Data. The yield touched 3.58%, the highest level since August 24. Thirty-year bonds yielded 4.49%, 369 basis points more than the two-year security.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.497% to 270.86.

Businesswire.co.nz

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