Weekly Market Summary

by Raymond Chatlani

On Monday, Asian shares fell and the dollar languished near a record low against the Swiss franc, as investors took fright at a downgrade of the U.S. credit rating, while gold powered to another new record high of $1,712 an ounce despite pledges by the G7 and the ECB. The falls continued although G7 finance ministers that they were "ready to take action to ensure stability and liquidity in markets" and the ECB said that it would "actively implement" its controversial bond-buying programme to fight the euro zone's debt crisis and actively start buying Spanish and Italian debt. European and US markets extended last week's rout with the Dow Jones industrial average ending 5.55 percent lower following Friday's historic downgrade of the U.S. AAA credit grade by ratings firm Standard & Poor's.

On Tuesday, Asian stockmarkets nosedived and the Swiss franc held near a record high, as investors dumped riskier assets in a global rout triggered by fears that political leaders are failing to tackle debt crises in Europe and the United States while gold hit a new high of $1,778 an ounce. The news that Chinese consumer prices in July rose 6.5 percent from a year earlier contributed to these falls, but Asian markets later staged a sharp rebound from early lows. European and US markets recovered after initially falling in a highly volatile session and closed into positive territory after the U.S. Federal Reserve promised to extend near-zero interest rates for two more years and said it would consider further steps to help growth..


On Wednesday, Asian stocks rebounded, following a jump in U.S. shares, after the Federal Reserve made an unprecedented pledge to keep interest rates near zero for at least two years, stemming a global equity rout for the time being. European markets got hammered on worries that the debt crisis in Europe is spilling in to France amid a weaker economic outlook in the United States. A storm of market questions on the financial solidity of a major French bank and talk of an impending downgrade of France's credit rating, all denied by authorities, rattled financial markets. Safe-haven buying lifted gold above $1,800 per ounce for the first time and oil rebounded from six month lows on Wedesday as confidence in the U.S. and euro zone economies eroded fast. U.S. stockmarkets also fell on fears about the French banking sector's exposure to shaky European debt and its possible spillover onto U.S. banks.

On Thursday, Asian stocks fell 1-2 percent as the fallout from Wall Street's 4 percent drop overnight was limited by a rise in U.S. stock futures, while gold climbed above $1,800 an ounce to a new record, reflecting fears over Europe's worsening financial crisis. European markets initially fell as French bank's shares prices and the cost of insuring Italian government bonds against default hit a record high and the country's stock market fell again as politicians raised doubts about Prime Minister Silvio Berlusconi's new austerity plan. However, European and US stockmarkets rose strongly as a strong U.S. jobs report trumped early concerns about French banks and fears that Europe's debt crisis will spread.


On Friday, Asian stocks edged up, as investors hunted for value after an intense week of volatility, though the festering European financial crisis may mean that havens like gold and the Swiss franc may still draw buyers. European markets rose as regulators of major European exchanges banned the short-selling of financial company shares, protecting them from downward pressure by speculators.Wall Street rose gently at the time of writing as traders dissected mixed reports on consumer sentiment, retail sales and business inventories. The government says that consumers spent more on autos, furniture and gasoline in July, pushing up retail sales by the largest amount in four months. But a survey on consumer sentiment fell to its lowest level in more than 30 years. And a separate report showed that businesses increased their stockpiles in July by the smallest amount since May 2010.

Another volatile week in the markets where investors continued to sell equities and commodities and seek safe havens such as gold, the Swiss Franc and US treasuries. This week gold breeched $1,800 an ounce temporarily. Besides last week's fears of a US slowdown and spikes of over 6 percent in Spanish and Italian bonds which were unsustainable, this week investors sold on rumours of a downgrade in France's credit rating and fears that Societe Generale may become insolvent and has to be bailed out by the French Government. French authorities denied this and markets bounced back today on the back of a ban on short selling of financial shares in many European markets, especially Spain, Italy and France.

Such volatility is expected to continue for a few weeks until it is clear whether the US economy will fall into recession again and if the Eurozone countries can muddle through the debt crisis.