Markets Round-Up: Bearish Trend Follows Recent Peaks

Last week ended on a low point for global stock markets. Global equities had reached multi-months heights but had to yield positions on Friday 24, on account of renewed worries over the Eurozone debt crisis and a possible slowdown in China according to The Financial Times round-up.

Friday saw all major markets declining. On Wall Street, the S&P 500 registered a weekly decline, the first in nearly two months. In China the situation was far worse, as the Chinese stock market plunged to levels last seen during the global financial crisis. The Shanghai Composite index showed weakness on Friday falling 1 percent to its lowest since 2009, which resulted in a mild risk averse mood across asset classes.

The FTSE All-World equity index closed at a slightly lower level, while Europe’s FTSE Eurofirst 300 upped a bit. The FTSE Asia Pacific index was 1.2 percent down as both Tokyo and Hong Kong fell by 1.2 percent.
Uncertainty on the markets and cautious investors usually doesn’t have a negative effect on the US dollar; more often than not quite the opposite trend occurs as traders turn in numbers to their traditional safe haven asset. Not surprisingly, the US dollar index remained stable on Friday and managed to climb up by 0.3 percent.

Earlier the same week, many national benchmarks had reached multi-months peaks, including a four-year high by Wall Street’s S&P 500. The positive performance was driven by some improved US economic data and investors being more optimistic about the Eurozone crisis. Also, traders believed that large central banks would provide support if needed.
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News from the US Federal Reserve’s latest meeting that more asset purchases, or QE3, were to be expected also boosted investors’ confidence.
But investors’ enthusiasm soon faded, after it became clear that the information on QE3 was rather inconclusive. Weak reports from China and Europe increased the uncertainty turning the tide towards a bearish trend.

Investors were particularly unhappy with the lack of aggressive support from the People’s Bank of China to the world’s second-biggest economy, which is showing signs of slowing.
Europe is still a significant cause of concerns to traders, with Greece and Spain on everyone’s lips. Some had speculated that there’ve been discussions between the European Commission and the Spanish government about a full sovereign bailout, but both parties rejected the speculation. Spain’s bond yields rose 10 basis points for 10-year notes to 6.45 per cent. The situation in Spain is slightly better though, with borrowing costs seemingly safe from getting anywhere near July’s record heights. Two-year yields saw a 5 basis points increase to 3.76 per cent.
Investors were also concerned about the possibility of Greece leaving the Eurozone. Although Athens has denied that it has any such intentions, the uncertainty brought by the subject contributed to Friday’s weak performance.