This week was driven by risk appetite sentiment as traders took advantage of the improved economic data including the exceptional US January employment report, China’s January manufacturing PMI reading, better European PMI reports, and strong Empire and Dallas Fed manufacturing surveys… Not mentioning Tuesday’s informal EU leaders’ summit, where 25 EU member states (ex the UK and the Czech Republic) further refined their commitment to the new fiscal pact and the €500B ESM permanent bailout fund, which in turn boosted the risk sentiment further.
Forex News Trading
Global equity indices gained this week as traders once again predictably reacted to the S&P sovereign downgrades in a typical ”buy on rumor, sell on news” scenario, which is understandable as the uncertainty of this action is finally over. As a result, risk sentiment was the primary driver of the market and news out of China’s +8.9% Q4 GDP reading also added to the sentiment. However, there were also a few headlines that brought the focus back to the European debt crisis, including Greece’s debt haircuts and IMF’s cut on world GDP for 2012. For the week the DJIA gained 2.4%, the NASDAQ 2.8%, and the S&P 500 2%, marking the third straight week of gains for all three indices.
The news on Friday was that S&P finally downgraded a number of euro zone member nations, including France’s sovereign ratingby one notch, from AAA to AA+. Markets had muted reaction considering that the moves had been in much focus thus largely priced in. There were also more signs that Europe would fall back to a ‘technical recession’ in early 2012, especially with disappointing forecasts for initial GDP data seen in many parts of Europe, including Germany, in other European news, both the ECB and BoE kept interest rates and their monetary policies on hold this week, as expected by analysts.
The first real trading week for the new year in markets started with investors focused on Europe. US and European markets were closed on Monday for the New Year’s holiday and opened higher on Tuesday due to some better Germany employment and Chinese PMI data, plus a strong US ISM manufacturing report. But the market soon turned to the worse as S&P’s threat to downgrade the sovereign ratings continued to drive the market to risk aversion and of course, reports that the Spanish region of Valencia would delay a bond payment didn’t help at all…
Happy New Year 2012. Here’s a quick wrap-up:
Market liquidity during the last week of 2011 were extremely light worldwide during the holiday week with US and European equity indices were flat with Asia markets down slightly. 2011 has been a disappointing year for equities, with most major European and Asian indices down: DAX ended 15% lower, the CAC 40 declined 17%, FTSE 100 index fell 5.5%, the Nikkei 225 closed down 17%, and the Hang Seng Index was down nearly 20% in 2011.
Let me that this opportunity to wish everyone a Merry Christmas and a Happy New Year… With that being said, here is a fair warning: As we get close to the end of the year, market liquidity is going to become thinner and thinner, therefore it is best to stay out of the market and enjoy this holiday season… however, if you are still planning to trade this week, then here are the news releases you need to watch out for:
Market focus this week was largely on the European Union leaders’ summit on Thursday and Friday, as well as the ECB rate decision on Thursday morning. A sense of optimism helped to drive down yields on both Italian and Spanish 10-year debt below 6% for the first time in weeks during early week, however that sentiment was short-lived as S&P put the sovereign ratings of all 17 euro zone nations — including its six AAA-rated members — on watch negative, later on Monday evening.
