Another milestone week for the markets as the US Federal Reserve pledged a follow through with stimulus measures to boost economic growth, further alleviating concerns of a downward spiral of the global economy.
The main Economic Event - The Federal Reserve Announcement
On Thursday, Federal Reserve Chairman Bernanke unveiled stimulus measures to help boost the US economy and combat the stubborn unemployment rate which continued to hover at the eight percent mark. In its third round of quantitative easing or QE3, the Fed pledged that it will boost its long-term bond holdings by purchasing around $40 billion worth of mortgage securities every month. It is worth noting that the Fed bought more than $2 trillion worth of bonds in the first two rounds of QE from late-2008 to mid-2011. ECB announced its own unlimited bond-buying plan last September 6.
These recent developments prompted investors to move away from bonds and into stocks, commodities, and high-yielding currencies.
With a cemented risk-on sentiment, another green week ensued for the stock markets around the world.
In Asia, region-wide gains were led by more than two percent increase in the indices of Sri Lanka, Indonesia, India (Sensex and Nifty), Korea, Taiwan, and Hong Kong. Majority of the remaining indices inked more than one percent gains.
In Europe, the main indices of UK, Germany, France, Switzerland, Italy, and Spain were all up. Bucking the overall trend were a few indices, with top losers being the Egypt and Cyprus indices shedding a little over one percent and 4.70 percent, respectively. Like several beleaguered Eurozone nations, Cyprus is seeking international financial aid. Meanwhile, Egypt is experiencing civilian unrest sparked by a film that purportedly insults the Prophet Mohammad.
The main US indices of DJIA, S&P500, and Nasdaq posted healthy gains as well, with S&P500 boosted to its best level since 2007.
On the commodities front, aluminum, lead, nickel, gold, oil, and platinum all posted strong gains. Oil rose to its highest in about four months, with talks of WTI crude breaching the $100 mark anytime soon. Aside from the risk-on sentiment, tensions in the Middle East, with reported demonstrations in Egypt, Tunisia, Iran, Sudan, and Yemen, are sparking oil supply concerns.
The major currencies started the week slightly down before launching a four-day winning streak, particularly EURUSD, CHFUSD, GBPUSD, and AUDUSD. EURUSD and USDJPY ended up more than one percent higher, while EURJPY closed two percent better. EURUSD rose as high as 1.4 percent to 1.3168, a level last seen in May 4. Meanwhile, USDJPY made a Friday 90-pip bounce after sliding all week.
Next Week’s Projections
Moving forward, the market will be busy with key economic data and developments spread throughout the coming week. Investors will pay particular attention to Australia's RBA policy meeting minutes, German ZEW economic sentiment data, Bank of England's inflation letter, Japan's BOJ press conference, and central bank member speeches from the ECB and Fed.