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Global Overview 19th July
Last week was really a game of two halves, or rather more like a result reversal in injury time. The markets began the week looking more chipper, with positive European news and data supported by positive US company earnings results driving equity rallies and risk currency gains. Then markets turned lower late in the week, as disappointing results and poor data put the “double dippers” back in control again. Overall though, the damage was not that bad, with the Dow down 1%, the S&P 500 down 1.2% and the Nasdaq down 0.8% over the week.
But sentiment remains wary, and this week looks like risk will be shunned as markets again run for the protection of the Japanese yen, and the safety of US bonds. This may not last either, but the pattern of “risk on, risk off” remains the dominant driving force and that looks unlikely to change anytime soon. This week has more US reporting due, as more companies announce results and consequently we are likely to see a very headline driven week. In effect, economic data will battle perceptions of how good or bad the results are and that makes for very choppy trading conditions in holiday thinned markets.
In Europe, markets began well. Greece sold EUR1.625b of 6 month T-bills, its first debt sale since May. Portugal was downgraded two notches to A1, but the lack of a forceful reaction cheered on European exchanges. Sentiment was not even dented by the Mannheim based ZEW economic think tank's monthly poll of economic sentiment falling to 21.2 from 28.7. A reading of -1.5 had been forecast. This week the focus will be on the stress test results due out on Friday night. Dominique Strauss-Kahn, the head of the IMF, said that they will show that all the major European banks have sufficient capital.
