The Week Just Gone

Scepticism was rife across the markets this week, stocks tumbled, dismissing global efforts to stimulate economic growth amid mounting evidence of a deepening recession. Equities fell sharply as investors flocked to the safety of government bonds, gold and the dollar. In the UK, Lloyd’s dragged the banking sector lower as its shares fell 32% on Friday. The FTSE closed the week at 4189.6, a loss of 102.3 points or 2.38% over 5 days.

FTSE Rolling Future Mon 9th to Fri 13th Feb 2009

Although the $789bn US stimulus package was widely expected to be passed by Congress, there was an increasing sentiment of doubt as to how much this would do to help the economy recover. The Dow ended the week at its lowest point since November and headed into the three-day weekend after posting its second-lowest close in six years, closing Friday at 7850.41, a loss of 5.2% for the week. The Nasdaq finished at 1534.36, down 3.6 percent and the S&P ended the week at 826.84, a drop of 4.8 percent.

Spot gold briefly pushed above $950 an ounce on Wednesday- its highest level for more than six months as increasing risk aversion forced investors to seek a refuge from turmoil in other asset classes. Over the week, gold rose 2.7% to $935 an ounce.

Sterling was a major loser in the currency markets after the Bank of England’s inflation report. In its quarterly report on Wednesday, the Bank cut its growth estimate sharply and forecast that UK inflation would fall well below its target if interest rates remained at their current level. Over the week, the pound fell 2.6% against the dollar to 1.4388 and 1.9% against the euro to 0.8937, the dollar climbed 0.8% against the euro to $1.2862.

The yield on the 10 year Gilt dropped 25 basis points to 3.4% on Wednesday, as the Bank of England suggested it was preparing to buy huge sums of government bonds and other assets to stimulate growth. It was the biggest one day fall for at least 10 years. The yield on the 10 year US Treasury bond briefly climbed above 3% but ended the week 9 basis points lower on the week at 2.89%.

In commodities, oil prices fell amid concerns about the outlook for consumption after the International Energy Agency forcast that demand would fall by 1 million barrels a day this year. April Brent fell $1.23 to $44.80, down 3% on the week, WTI March contract was down 11.9% for the week at $35.40.

The Week Ahead:

This week sees a continuing flow of UK companies announcing results, and a relatively busy schedule for UK economic announcements. In the US, the week is cut short by a national holiday on Monday. On Wednesday the US Central Bank is due to release the minutes from its most recent interest rate meeting. With US rates having already hit an effective zero level, investors will be keen to assess other measures which the Central Bank believes worthy of use in order to help stimulate the economy.

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