After several weeks of unprecedented volatility, it was a completely different picture this week as the market was relatively flat. Extraordinary market moving news in the form of surprise speeches and announcements from prominent leaders were lacking, leading the market to focus on lingering issues and daily economic releases.
Italian and Spanish Italian two-year notes dropped for the first time in three weeks on concerns ECB will cap borrowing costs of these two nations. Fitch affirmed Germany's AAA rating and said outlook is stable. US Treasuries rose and commodities fell as data from China and France cemented signs the world economy is weakening and led investors to seek safer assets.
S&P 500 soared for a sixth day, closing above 1,400, its highest level since early April. This is the longest rally for the index since 2010, amid speculation that the US Federal Reserve will provide further economic stimulus. Boston Fed’s Rosengren renewed his call for QE as he sees "the second half of the year won’t be much better." Meanwhile, San Francisco Fed chief John Williams has recently joined calls for QE and is now in favor of a third round of quantitative easing or QE3. Williams said lingering issues of high unemployment rate and slow economic recovery led to this turnaround in his decision.
Currency markets were generally timid this week but Monday started off with EURCHF allegedly having another 'fat finger' incident, spiking briefly to 1.2092 from the 1.2000 lows. A few days later, Reuters said the spike was caused by an RBS algo error.
Euro posted a weekly loss against the US Dollar and Yen. EURUSD spent two days near last week's 1.2404 highs and breached it briefly. From there, it gradually drifted down, erasing most of last week's gain and ending below 1.2300. AUDUSD spent the whole week ranging between 1.0500 and 1.0600, with brief forays beyond these areas. Reserve Bank of Australia left its rate unchanged on Tuesday. For EURGBP, a lackluster two-day up move was followed by a persistent down move, ending the week near its lows and just 40 pips away from last week's 0.7790 lows. Meanwhile, USDJPY grinded a 60-pip range all week long, lacking the vitality to reach 79.00 and has continued gravitate towards 78.00 since late July. USDCAD rallied amid speculation that global growth will maintain demand for oil, Canada's main export. USDCAD closed the week a few pips above 0.9900.
For the coming week, the market is expected to focus on Britain's MPC Minutes, BOE Inflation Letter, and Germany's ZEW Economic Sentiment. Volatility can also come from Retails Sales, Unemployment and Inflation reports from Britain and the US. The week will be capped off by Canada's Retail Sales and University of Michigan Consumer Sentiment from the US.