The markets cheered the economic developments this week, brought about by high-level discussions and favorable economic data releases.
Most notably, Germany, US, and China all released better than expected data figures in the form of Germany’s Flash Manufacturing PMI, Ifo Business Climate; US Existing Home Sales, Housing Starts; and China’s HSBC Flash Manufacturng PMI. China’s data release was a welcome surprise as many analysts were concerned that the China economy was slowing down. The Eurogroup meetings and US budget discussions between President Obama and Congressional leaders also yielded optimism, although the authorities pointed out that further discussion are necessary.
In other news, Israel and Hamas agreed to a truce, following negotiations in cooperation with Egpytian leaders and US Secretary of State Hillary Clinton. The ceasefire ended eight days of attacks and air strikes. Meanwhile, clashes that sparked in Egypt continued for a second day on Friday after President Mohamed Mursi issued a decree that grants him extended political powers, which critics feared would put him a step closer to enforcing a dictatorship over the nation. The decree was issued a day after he helped broker a ceasefire between Hamas and Israel.
Stocks, Bonds, and Commodities
Saudi Arabian shares finally gained for the very first time in 11 days, escaping from its longest losing streak in 20 months. After falling by 4.8 percent in the last 10 days to a four-month low, Saudi’s Tadawul Index closed 0.8 percent higher to 6,665.49 on Friday. Saudi shares benefitted from the Israel-Hamas ceasefire.
European indices have been impressive, all climbing up each day of this week. US and emerging market stocks also made gains. US markets soared to its best rally since June, with S&P 500 rising 3.9% this week.
In the bond market, UK gilts fell for the very first time in five weeks after the Bank of England signaled that it is unlikely to slash rates anytime soon. German bunds also fell to its first in five weeks on optimism about Greece and that leaders are taking action to curb the ongoing crisis.
In the commodities front, Black Friday turned out to be a really Good Friday as far as gold traders were concerned, as gold finally made its way beyond the $1,740 near-term resistance. Gold made a convincing rally and closed at $1,750, beyond the resistance area which held price since late-October. Buyers cannot stay complacent as bears could be lurking around $1,770.
Oil has been making fairly consistent higher lows since November 9 and has successfully closed above 88.00 this week. The next area of contention would be the 90.00 level, an area nearly reached last Monday.
EURUSD is on pace to erase of all of this month’s losses after it rallied close to the 1.3000 level on Friday. The 1.2800 support provided a base for prices to gain further, paving the way for a 1.3100/1.3300 range assault this coming December.
A second week of impressive gains ensued for USDJPY after capturing the 80.00 level and subsequently breaking above 81.00. A solid floor at 82.00 would catapult price to its next target around 84.00.
Not wanting to be outdone by other majors, GBPUSD unleashed a 120-pip rally during late-Friday’s trading. The pair has been making consistent higher highs since printing the 1.5825 November 15 low and is on its way to a renewed assault to the 1.6100-highs as long as 1.6000 holds through next week.
Meanwhile, AUDUSD continues to be a laggard, having been embroiled in a tight 90-pip range all week before joining the pack’s move higher on Friday. EURUAUD is still exerting a negative influence on this pair.
The Week Ahead
The coming week is another interesting one filled with high-level meetings and speeches, giving investors a lot to watch out for. Monday will start off with the resumption of the Eurogroup meetings; On Tuesday, UK Revised GDP, US Durable Goods Orders, US Conference Board Consume Confidence, and speeches from Fed’s Lockhart and Bernanke; Wednesday releases include Germany Preliminary CPI, US New Home Sales and Crude Oil inventories, and SNB Chairman Jordan’s speech; On Thursday, New Zealand’s NBNZ Business Confidence, Australia’s Private Capital Expenditure, Italian 10-year bond auction, UK BOE Governor King’s speech, and US Preliminary GDP, Unemployment Claims, and Pending Home Sales; and Friday ends with the releases of Japan’s Unemployment Rate and Preliminary Industrial Production data, Germany’s Retail Sales, France’s Consumer Spending, Italy’s Unemployment Rate, and Canada’s GDP.