Weekly Markey Summary

By Raymond Chatlani

On Monday, European and US markets closed higher on US home sales that were sharply higher in June compared to May's slide to a record low since 1963. This reaction may have been overdone as new sales only comprise 7% of all house sales compared to an annual average of 15% of all house sales in the past. Also a better than expected profit outlook from transportation stock Fedex Corp also helped to boost market sentiment.

On Tuesday, Asia started mostly down on thin volume due to rumours that Chinese banks are facing rising default risks on loans to real estate developers, but recovered towards the end of the session. While European markets were up, US indices fell slightly as the Consumer Confidence Index fell as Americans worry about job prospects and skimpy wage growth. Spot gold fell to a three month low of $1,162 an ounce as deflation worries continue.

On Wednesday, Asian equities were positive at the end of the session after being neutral earlier due to mixed earnong reports from the USA and the drop in consumer confidence. European and US markets fell as orders for durable goods dropped 1 percent in June and the Federal Reserve beige book report painted a picture of a less than robust recovery.

On Thursday, Asian stocks were mostly higher as the US dollar dipped due to fears that the US economy is slowing. European and US markets fell due to these fears which may be confirmed if US second quarter GDP figures confirm this slowdown.

ON Friday, Asian markets fell due to reports out of Japan that the jobless rate unexpectedly rose, deflation deepened and industrial production fell the most in a year amid worries that US GDP growth would be lower than expected. Both European and US markets fell for a second straight day as second quarter US GDP growth was reported at 2.4% which was down from 3.7% in the first quarter of 2010.

Equities and especially commodities had a second consecutive positive week but have given up their gains over the past two days. Markets are going up and falling without any clear direction although July was mainly a positive month for stocks and commodities. Although reported earnings by companies have been good, this has largely been achieved by strict cost cutting without an increase in revenues. Without increasing sales, these earnings cannot be sustained in coming quarters. The present risk reward ratio is negative and a prudent stance should be taken for now. Also, we can expect thin volumes over the next 6 weeks as most traders will be away on their holidays.

Hopefully, we shall see opportunities materalise in September and go back in the market into the sectors that we feel offer value. After its recent pullback, gold look interesting. We expect the price of gold to fall back further over the next few weeks and are looking to launch a gold structured product with one of the institutions that we know.