This week Chinese market saw some huge corrections. Experts can give many causes like weakening growth data (as HSBC’s preliminary purchasing manager’s index fell to 10 month low of 51.1 in May), expectation of rise in inflation number e.t.c. Reports from US are not encouraging as well, because their Consumer Purchase rose less than forecast in April, though there was increase in New Home Sales in April but sales of Existing Homes fell in April.
In the opening day of the week EURO & AUD e.t.c. were trading at low because of Chinese PMI data, Europe’s own debt problem and defeat of ruling party in Spanish election. AUD rose later half of the week due to remark from the official of Australian Central Bank and due to demand for equities. USD fell in Friday as some good comment came about Greece.
Treasuries gained for 2nd in a row, as no improvement in European debt crisis and no better economical figures. Some profit booking came in Treasury, on Friday. On weekly basis 2-Year & 5-Year Treasury yields close negatively for the 7th consecutive week.
Goldman Sachs said that they expect Brent Crude can touch $140 by the end of next year. They said that loss of Libyan Crude Oil production and disappointing production from non OPEC countries will continue to tighten the Oil market. They are not seeing much hope from inventories and spare capacity, so ultimately price will increase to restrain demands.
Most of the markets were down this week, though some were average. IMF head Strauss Kahn's arrest effects the market as well as the presidential election of France this week, later in the week he resigned from the post. Rating Agencies ruled the market this week, as some rating cuts & revision happened this week. Fitch cut Greece’s credit rating, Moody’s cut credit rating of 4 Australian banks, Goldman Sachs revised down the rating of South Korean market, S&P lowered its outlook on Italy. All these rating agencies are again working hard these days to make market down, so that new moneys can enter. In the early days of the week investors in China and Australia bought lot of beaten down stocks.
Goldman Sachs cut it’s dollar forecast as they are seeing more weakness in coming days. This forecast is quite different from others because it did not effect much in USD’s move. Things can be different if it would be another currency or another part of the world. Anyway, Euro dropped to 7th week low against USD. It also fell in a record low against Swiss FRANC due to Greece matter. Many are suspecting that things can be bad for Spain’s ruling party on local & regional elections in weekend. They are expecting Spanish borrowing cost to rise for any political turmoil.
IMF head, Strauss Kahn’s arrest not only created problem in French presidential race but many were suspecting that it would also hamper Greece plead for bail out money. This week Greek sovereign debt problem made investor to take shelter in the safety of US Treasuries. As all the treasuries rose this week.
Betting against the USD is no longer a safe option. It has lost its value against many of the global currencies, not only against EURO,YEN but also against the smaller players . Falling Dollar has created lot of buying opportunities in commodity market, but slight rise in USD has created lot of panic in the financial world few days ago, though to some extent there is also the Chinese factor.
Why USD was falling? Federal policy was, printing US Dollars to produce liquidity and there by raise the economic recovery. They really needed that to come out of this economic recession, which started with Sub-Prime market and related events. It is the simple rule, more the supply less the price.This liquidity created big rises in commodity and stock market. On the other hand through QE-2 Fed was indirectly giving moneys to primary dealers to buy Treasuries, which helps to devaluate USD.
Every market is hot these days, so where investors are going to put their moneys ! Everyone does not have the luxury to put their moneys on savings bank account to get higher interest rate. Asyou can get higher interest rate generally in the those developing countries where inflation rate is on the higher side.
I want to compare different investment opportunities with their march, 2009 value. Now why march, 2009? That is because during this time stock indexes were in lower points after corrections, as such from here they have started a new bull run.
We can see that Shanghai Composite is the leading cheapest index at this moment, if we compare today with march 2009 level. Some of you may ask me, are you blind, do not you see the Nikkei figure? Sorry, I will not consider Nikkei unless it comes out all of this problems which it is facing now days, as we cannot forget that Nikkei has not faced general corrections in the stock market but it was a panic selling due to natural disaster. So…
German economy is doing fairly well, its latest data, the export figure surge 7.3% higher than February. Somewhere I was reading that this increase figure is highest from when they are recording data. Germany’s concern is now about the PIGS, as how to save Greece e.t.c. DAX has already tried to test 7600 level twice this year, last time it was close to go past 7600 level but it eventually failed. Some indicators are saying that German index DAX is in slightly over-bought condition. For DAX it’s near by good support is at 7200 level. Its 200 day EMA is far below level. I am expecting it to again go and test the resistance at 7600 level in coming days. Last week statements from ECB about interest rate spoiled it’s move. Now if we compare Germany’s DAX index with its neighbor France’s CAC, then we can better understand where DAX is.
In the early days of this week market got some positive clue from Bin Laden news but it couldn't carry-on this gain due to bad news Europe and forsudden crash in commodity prices. Most markets were negative this week.