"The market is never a one-way street", and this saying rings true for this week as the market euphoria fades, at least for now. After climbing for several weeks, reality has finally set in and the market seems ready to face the current economic issues again.
Slowing global economic growth was front and center, overshadowing the stimulus announcements of the US Fed and ECB in the previous weeks. Dovish minutes from the Reserve Bank of Australia, weak data from China, and surprise QE (Quantitative easing) from BOJ all furnished a risk-off view to the markets. Bank of Japan widened the asset purchase program from 45Tln Yen to 55Tln Yen and expressed that there is "a pause in Japan’s recovery due to overseas slowdown." In Europe, Spanish Prime Minister Mariano Rajoy considered seeking external aid for the ailing nation after the ECB pledged to buy bonds in unlimited quantities.
Stocks, Bonds, and commodities
After rising to its strongest level since December 2007, S&P500 fell for the week, snapping a two-week rise. Commodity and financial stocks were most affected, as global growth concerns led investors to pare their holdings. S&P 500 fell 0.4 percent this week, but is currently 16% better for the entire 2012. Meanwhile, Dow Jones fell almost 14 points to 13,579.47. European stocks were little changed, and Asian stocks halted its two-week gain.
Treasuries recovered part of the losses it incurred last week when the US Fed declared more stimulus and low rates will remain until 2015. Treasuries climbed for the very first week this September as manufacturing data from New York and Philadelphia slowed, with the latter showing a fifth straight month of contraction. Weak PMI data for China and Eurozone manufacturing also aided the rise in Treasuries, as well as German bunds. For its part, Spanish bonds climbed on concerns the nation would look for international aid.
Gold held inside a tight $36 range for the entire week and closed nearly unchanged. Oil maintained a bullish tone on speculation central bank stimulus will help revive the slowing world economy.
EURUSD started the week making a momentary breach of last week's high, followed by a gradual 250-pip decline, ending near the weekly low at 1.2979. The market will be keeping a close watch of 1.2900 and 1.3000. 1.2918 was the low for this week.
For AUDUSD, the move down started earnestly from Monday, making a 190-pip decline, and closing down nearly 1% for the week. Meanwhile, GBPUSD bucked the trend and ended up nearly unchanged. GBPUSD climbed for a seventh week and to its best level in more than 12 months. GBP's rise against EUR for the first time in about six weeks also contributed to GBPUSD's resilience.
The Week Ahead
Unlike the previous weeks, next week is relatively light in terms of economic data. The market will look at Canada's Retail Sales and GDP; Germany's Ifo; New Zealand's NBNZ Business Confidence; and Pending Home Sales, New Home Sales, and Unemployment Claims from the US. The market will also be keen to hear speeches of ECBs Draghi, SNB Chairman Jordan, and Bank of Canada's Governor Carney.