By David Fiander
Equities Risk Manager
CMC Markets Singapore
Asian markets rounded out the week in positive territory in what was a busy few days of economic news. On Tuesday we saw the German courts pass legislation to allow participation in the ESM $600BN bailout fund then on Thursday night we had the widely anticipated FOMC meeting, with all eyes on Fed Chairman Ben Bernanke. Traders were looking for strong conviction to ease the growing concerns over the sluggish U.S economy and he did not fail to disappoint.
The Chairman pledged to buy $40 billion of agency mortgage-backed securities each month along with keeping Operation Twist in place; this also coincided with keeping interest rates low until at least mid 2015. With markets expecting some form of quantitative easing, they took encouragement from the level of conviction seen in the outcome of the FOMC meeting, this lead to a strong stock market rally, pushing the Dow 1.55% higher to 13,540 while the S&P jumped 1.6% to 1459.
Asian equity markets finished the week broadly higher as the trifecta of stimulus/stability programs gave investors a shining ray of hope that we could be in for a recovery. The Hang Seng was the biggest gainer on the day posting a rise of 2.9% as it rallied back to levels last seen in May with the Materials sector being the biggest contributor, for the week the Hong Kong market added over 4.2%.
The Nikkei was another index that posted solids gain on the day and week, rising 1.8% on the day and over 3.2% for the week as optimism about global growth prospects in the wake of the American stimulus program outweighed concerns about the impact a stronger Yen will have on exports, as some believe intervention in the Yen may be on the cards soon.
The Australian market underperformed the broader region in posting a weekly gain of 1.5% as strong gains in Resource stocks were somewhat offset by a selloff in traditional defensive stocks and those with large international exposure as the AUD strengthened.
The Singapore market has risen to its highest level in a month in posting a weekly gain of 1.8% but it did underperform the region slightly also after a central bank survey of economists earlier in the week pointed towards lower economic growth in the current and next year than previously forecast and at the same time they expected inflation to be higher than earlier surveys as rent and car prices spiralled.
Commodity stocks were again the flavour of the day with palm oil firm Wilmar finishing the day over 7% higher along with Olam and Noble finishing around 6% higher.
In Forex markets the main theme was USD weakness as the dollar index declined nearly 1.5% for the week as the Federal Reserve announced what was essentially open ended money printing.
The rise of the Euro against the US Dollar was one of the big stories of the week as the German court ruling helped ease fears about the future of the common currency and the announcement of QE3 had inflationary impacts. EURUSD rate now sits close to 1.303 which was a gain of 1.6% for the week. The AUD was another major beneficiary over the week as it gained 2c as investors bought into the risk-on trade.
Gold has been well bid all week and finished its 4th straight week of gains sitting at $1,772.50/oz as ESM bond buying program increased the lure of Gold as a hedge against inflation.
Oil prices hit session highs of $99.75 a barrel, a level last seen back in May as investors expected some form of quantitative easing to help stimulate the U.S economy, this was also added to as a result of the growing concerns in the Middle East after the U.S. ambassador to Libya was killed in Benghazi during the week.
Tonight the focus with be back on the U.S with retails sales due out, the market will be hoping for a positive number which will show signs the economy is moving in the right direction.
Then looking forward for the week, we see CPI figures in Britain on Tuesday along with U.S existing home sales due out later in the week, particular attention will be on this number as it come on the back of the new round quantitative easing, with hopes of targeting the US housing market issues.