Weekly Market Summary

by Raymond Chatlani

On Monday, Asian stockmarkets fell after German Chancellor Angela Merkel's reiteration on Friday of her objection to the introduction of euro bonds, and an unexpectedly low 75 percent participation in Greece's debt initiative, below the 90 percent target. European and US stockmarkets tanked on prospects of a Greek default and increasing fears that the single currency may be forced to break up unless greater fiscal integration is brought in.

On Tuesday, Asian stockmarkets and the euro fell after ratings agency S&P downgraded Italy a notch amid fears of a Greek default, as investors worried that the euro zone's debt woes will pitch the global financial system into a full-blown banking crisis. European markets rose despite a credit rating downgrade for Italy that heightened tensions surrounding the eurozone debt crisis with Greece struggling to avert a default as investors waited in anticipation the start today of a Federal Reserve monetary policy meeting. Wall Street rose as investors hoped the Federal Reserve's policy panel would add more monetary stimulus to kick-start economic recovery.

On Wednesday, Asian stockmarkets rose as investors waited to see if at the end of its two day meeting, the FEDS would announce further monetary policies to aid the global economy. European markets fell on fresh concerns over banks' exposure to indebted Greece. US equities fell after the U.S. Federal Reserve's widely expected plan to buy $400 billion in long-term debt failed to convince investors that "operation twist" would be enough to revive growth. The Feds intend to sell $400 billion of short-term Treasury bonds to buy longer-dated debt aimed at stimulating the economy by forcing down long-term borrowing costs.

On Thursday, Asian stockmarkets fell following a slide on Wall Street, as investors took fright at a warning from the Federal Reserve that the United States faced a grim economic outlook with "significant downside risks". HSBC China Flash PMI survey showed factory output fell for a third consecutive month in September, pointing to a slowdown in the world's second largest economy which further accelerated falls in Asia. European stocks slumped echoing falls elsewhere, after the US Federal Reserve disappointed investors with its stimulus plans and warned of serious downside risks amid the stubborn eurozone debt crisis. Wall Street plunged after the Federal Reserve indicated that the U.S. economic slump could last for years.

On Friday, Asian stockmarkets fell on prospects of a global recession as investors shed risky assets from portfolios and scurried to safer havens. European and US markets recovered from initial losses and closed in positive territory on talk that the European Central Bank might add liquidity to shore up the region's vulnerable banking system but persisting worries about a global recession kept markets volatile.

This morning, Asian markets tumbled on rumours that European leaders would accept some form of Greek default.

Last week, global equities and commodities tumbled as investors sought safe havens by buying the US Dollar and US treasuries on alarm at the U.S. Federal Reserve's dire outlook for the world's biggest economy at its two-day policy meeting last Thursday. The twin fears of U.S. recession and a banking crisis brought on by Europe sovereign debt woes have haunted equity markets in recent months and fuelled a sharp sell-off in early August and renewed weakness this month.
Commodities were decimated with oil, copper, gold and silver all falling over ten percent on fears that governments have done too little to head off a global recession. Financial markets are sick and tired of the authorities in Europe and in the U.S. twiddling their thumbs and not doing substantive things to solve this crisis of the global economy,

This weekend Finance ministers from the G20 nations gathered at a meeting of the International Monetary Fund (IMF) in Washington. It is expected that a plan to rescue the European single currency could be revealed within days. It is believed to involve beefing up the European Financial Stability Facility and an injection of funds into a number of continental banks.

The plans would lead to an orderly default by Greece but allow the country to remain within the eurozone in a bid to relieve some of the economic pressure on Spain and Italy.

Unless world leaders especially EU Governments act soon, we can only expect more of the same.