Weekly Market Review 30th July 2012

Federal Reserve Chairman Ben S. Bernanke may be taking another look at cutting the interest rate the Fed pays on bank reserves to bring down short-term borrowing costs and spur the slowing U.S. expansion. Policy makers meeting this week are looking for new monetary tools after the Fed lowered its benchmark interest rate to near zero in December 2008 and purchased $2.3 trillion of securities to spur the economy. A government report on July 27 showed economic growth slowed to a 1.5 percent annual rate in the second quarter as consumers curbed spending.

According to Bloomberg News, the European Central Bank President Mario Draghi has gone on the offensive as he seeks a game changer in the battle against the sovereign debt crisis. Draghi, who sparked a global market rally last week by pledging to do whatever it takes to preserve the euro, is trying to build consensus among governments and central bankers for a plan to ease borrowing costs in Spain and Italy before ECB policy makers convene on Aug. 2. He meets with U.S. Treasury Secretary Timothy Geithner in Frankfurt today and is also attempting to win over Bundesbank President Jens Weidmann, a critic of ECB bond purchases.

Representatives of Greece’s international creditors may extend their visit to the country until the government has completed work on a two-year, 11.5 billion-euro ($14 billion) budget plan, a Greek finance ministry official said yesterday. Members of the so-called troika were originally due to leave at the end of July and return at the end of August to complete a review on progress of the government’s budget cuts for this year and plans for 2013 and 2014, the official said in an e-mailed statement, according to an article published by Bloomberg News.

Bloomberg News reported that the Luxembourg’s Prime Minister Jean- Claude Juncker, who also heads the group of euro-area finance ministers, said the region’s temporary rescue fund and the European Central Bank are preparing act together to reduce borrowing costs, Sueddeutsche Zeitung reported, citing an interview.

EUR/USD: The EUR/USD touched a three-week high at 1.23883 on Friday following reports that European Central Bank President Mario Draghi is to meet with German central-bank head Jens Weidmann in the coming days to discuss steps to contain the debt crisis, including the purchase of Spanish and Italian bonds. However, the pair started this week on negative territory, trading lower at 1.22865 on profit taking and before a report today that may add to signs the region’s debt crisis is weighing on consumer sentiment. European Central Bank President Mario Draghi meets U.S. Treasury Secretary Timothy Geithner today as he attempts to win over Bundesbank President Jens Weidmann on measures to ease the region’s debt woes. The ECB can’t resolve the debt crisis alone, Moody’s Investors Service said before central bank officials gather for a policy decision on Aug. 2. Other significant events likely to affect the markets for the EUR/USD are; Monday, Spain preliminary GDP data and an auction of 10-year government bond in Italy. Tuesday; data on consumer price inflation in the Eurozone as well as official data on the unemployment rate. Meanwhile, Germany will release official data on retail sales and unemployment change, while France will release data on consumer spending. On the other hand, the U.S will publish official data on personal consumption expenditures price inflation, as well as on employment costs and personal spending. The country will also to release the Standard & Poor's/Case-Shiller house price inflation report, followed by Chicago’s purchasing managers’ index and industry data on consumer confidence. Wednesday, Spain and Italy will release data on manufacturing sector growth. While, the U.S. will produce data on non-farm employment change, as well as a report on crude oil stockpiles. The Institute for Supply Management will produce a report on manufacturing activity. In addition, the Federal Reserve will announce its benchmark interest rate. The announcement will be accompanied by the central bank’s rate statement. Thursday; the ECB will announce its benchmark interest rate. The announcement will be followed by a press conference with central bank president Mario Draghi. Later, the U.S. will release government data on initial jobless claims and factory orders. Friday; the euro zone will release official data on retail sales. While, the U.S. will release government data on non-farm employment change and the country’s unemployment rate, followed by official data on average hourly earnings, as well as an ISM report on non-manufacturing activity.

GBP/USD: The GBP was significantly up (a five-week high) against the USD on Friday, as investor confidence was boosted by expectations that the European Central Bank and euro zone leaders are about to step up measures to tackle the region’s debt crisis. The pair was trading lower this morning at 1.57218 at the time of writing on profit taking and market corrections. The GBP/USD is likely to register high volatility given the volume of important economic data in the U.K, the Eurozone and the U.S, set to release this week. Economic events in UK likely to affect the markets are; Monday; official data on net lending to individuals, as well as industry data on retail sales. Tuesday; a report on consumer confidence. Wednesday; two industry reports on house price inflation, followed by data on manufacturing sector activity. Thursday; a report on construction sector activity, while the BoE will announce its benchmark interest rate, as well as any changes to the size of its asset purchase program. Friday; data on service sector activity. Moreover, in the week ahead, investors will have to keep an eye on developments in the euro zone, as well as monetary policy decisions by the Federal Reserve, the ECB and the BoE, for indications on the movement of the pair.

Oil (WTI): Oil was up on Friday on speculation that U.S. and European policy makers will act to boost growth and concern that unrest in the Middle East may spread and disrupt supplies. The commodity was trading slightly lower at 90.430 at the time of writing on market corrections and profit taking. High volatility is expected this week on the price of oil as the European Central Bank and the U.S. Federal Reserve are scheduled to meet separately this week to discuss the economy. The ECB’s Governing Council is scheduled to meet Aug. 2 in Frankfurt and gauge the effect of its July decision to cut the benchmark interest rate to a record low of 0.75 percent. The Fed’s Federal Open Market Committee will consider the need for more stimulus at a two-day meeting that concludes Aug. 1. While, the Enbridge Energy Partners LP (EEP) said it’s unsure how soon it can resume a pipeline that supplies oil to Chicago-area refineries after a leak. Economic data, in the Eurozone, U.S and China will also impact on the price of oil throughout the week.

DOW: U.S. stock prices soared on Friday as European leaders pledged to protect the euro and U.S. economic growth exceeded forecasts. The DOW was trading at slightly lower at 12997.7 at the time of writing on profit taking and market corrections. Yet again, huge volatility is expected on the index throughout the week. In the week ahead, investors will have to keep an eye on developments in the euro zone, as well as monetary policy decisions by the Federal Reserve, the ECB and the BoE, for indications on the movement of the DOW. Moreover, the economic data in the Eurozone and the U.S will affect the market for the DOW.



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