Lingering concerns on the global economy paved the way for another lackluster week in the markets. This week focused on a few key economic data releases from the US, Japan, and Europe, including the much-awaited results of the bank stress tests conducted on Spain's lenders.
For the very first time in three years, US business activity contracted in September as shown by Chicago PMI which printed a reading of 49.7. This was enough to knock the reading below the key 50 level, after posting an August reading of 53. US data results for GDP, Pending Home Sales, and Durable Goods Orders were also worse than expected. For its part, Japanese data showed that industrial production surprisingly dropped more than forecasted, while Retail Sales were much better than expected.
In Europe, Spain's bank stress tests results revealed that Spanish banks have a capital deficit of less-than-estimated $76 billion. In contrast, banks would need approximately $80 billion based on June estimates. Recently, Deputy Economy Minister Fernando Jimenez Latorre told reporters on a Madrid news conference that Spain might end up requiring only about "40 billion Euros ($51 billion) of European funds for its banks."
The bank stress test, backed by the IMF and ECB, was created to allay concerns regarding the financial industry's capacity to take up losses. Spain undertook the test as part of an agreement to gain access to a European bailout.
Stocks, Bonds & Commodities
Stock markets worldwide were generally on a sour mood throughout the week, with US, Europe, and Asian main indices generally down. Asian stocks were down for the second week, while US stocks pursued its biggest weekly decline since June. The effect of Spain's bank stress test results was minimal since it was released only after the European market close on Friday.
Amid global growth concerns, US Treasuries and German Bunds rose. French government bonds also gained, while Spanish bonds fell on ongoing concerns with its economy.
For commodities, gold fell nearly $40 but demand came in and supported, ending the week nearly unchanged. Meanwhile, oil posted its largest quarterly gain and gasoline zoomed to a five-month high on concerns of lingering tension in the Middle East.
In the currency front, a dismal week also ensued with currencies embroiled in further consolidation. EURUSD opened the week at 1.2975, and spent most of it below 1.2900, with brief excursions above. It ended near the week's lows, closing at 1.2857. A move below 1.2800 is needed for bears to gain potential access to the 1.2500 and 1.2600 areas.
GBPUSD, AUDUSD, USDCHF, and USDJPY were also confined in consolidation.
The Week Ahead
Looking forward, the markets will set their sights on several important developments including the manufacturing PMI data from US, UK, and China; employment data from US and Canada; Australia's Trade Balance and Retail Sales; rate announcement and statement from RBA, BOJ, ECB, and BOE; Bernanke speech on Monday; and the ECB monetary policy meeting in Ljubljana, Slovenia on October 4. France and Spain will also auction bonds on October 4.