It was hard to be negative about anything yesterday, that is unless you are a Dollar. There was positive news out of Australia, when Central Bank meeting minutes were released. They hinted at potential future rate hikes. That set the stage for building Greenback weakness. Next came the U.K, with all of their data releases meeting expectations including CPI data. The Dollar then shot itself in the foot with positive manufacturing data, as the Empire Manufacturing Index beat analysts expectations handily. This set the stage for risk to re-emerge as there was little to no new news on Greece. The EUR gained 1.28% to close near short term resistance at 1.38.

The commodity currencies; NZD and AUD were the big winners on the day, advancing 1.54% and 1.50% respectively. The positive manufacturing data invited traders to resume long commodity positions as demand is expected to rise to meet manufacturing needs. Commodities were up across the board with Gold and Oil gaining the most attention. Gold advanced $18.25 to close above it 50 day Moving Average. Oil picked up nearly $3 a barrel to finish the session above $77.

Global Equity Markets joined in the rally as well. The NIKKIEI 225 put on an additional 20.95 points, while in the Euro-zone, the DJ EURO STOXX 50 added 36.94 to close at 2,720.77 and the FTSE 100 Index gained 76.59 points to end the day at 5,244.06. In the U.S, following Monday’s Holiday the Dow Jones Industrial Average added 169.67 points to close at 10,268.81 (see chart below). Leading the way were Financials as Barclay’s reported better than expected earnings. Oil and Gas were close behind at 2.55% as commodity prices were up sharply.

daily recap feb17

Indices

The overall trend in the market was slightly up through the week (February 8-12) but there was a cloud of concern hanging as China moved to curb bank lending and economic data in Europe fueled fears that the global recovery might be in jeopardy.

Despite these factors, some of which came to light only on Friday, markets in the U.S. ended the week surprisingly calm, losing slight ground on the final day. Better than expected U.S. January retail sales helped buoy markets. Friday started with a strong selloff in the morning on concern about the impact of China’s decision, but pulled back later in the day.

For the full week, the Standards & Poor’s (S&P) 500 Index rose 1 percent to 1,075.51. The Dow Jones Industrial Average gained 0.1 percent to end the week at 10,099.14.

S&P 500 February 8-12

European shares ended a four day winning streak on Friday after China’s bank announcement and a report by Eurostat, the European Union’s statistics agency, stating that gross domestic product (GDP) across the 16-country euro-zone grew a tepid 0.1 percent. The UK’s FTSE 100 gained 0.8 percent, Monday through Friday, to close at 5,138.46. Germany’s DAX rose 0.6 percent to 5,503.19. In France, the one bright point in the euro GDP report, the CAC 40 was basically flat for the week to close at 3,601.96.

Far East markets were not impacted by the Chinese central bank decision as the announcement came after the bell on Friday. Investors had next week’s three day Chinese New Year holidays in sight and looked to lock in profits ahead of the break. The Hang Seng index gained 3.4 percent over the week to close at 20,272.66. Japan’s Nikkei 225 lost 0.7 percent to 10,092.19.

Forex

The euro plunged to a nearly nine-month low against the dollar on Friday after European leaders left many questions unanswered in their rescue deal for debt stricken Greece. The dollar was further buoyed by China’s surprise monetary tightening, as investors opted for the safe-haven currency towards the weekend. The dollar moved to 80.748 against a currency basket on Friday, its highest level since July. Against the euro, the greenback gained 0.2 percent through the week to close at EUR 0.734.

USD-EUR February 8-12

Commodities

Currencies controlled much of gold’s direction during the week as the shift to the dollar brought the yellow metal down on Friday, erasing some of its earlier gains. Overall, in London Fix bullion prices, gold rose 2.2 percent during the week to $1,089.50/oz. Analysts noted, however, that the gold price is expected to remain well supported as long as there is economic uncertainty, which brings the potential for addition central bank purchases.

While China has indicated that it plans to diversify its vast foreign reserves into gold, many believe the country is waiting for a cheaper price. In the short term, however, most believe that short-term trading will be driven by the dollar and the level of uncertainty regarding the global economic recovery.

Platinum rose 2 percent for the week to $1,505 an ounce, and silver gained 1.1 percent to $15.33 an ounce.

New York crude oil fell for the first day in five on Friday, but the decline was not enough to spoil the gains for the week and prevent a five-week losing streak. Crude oil for March delivery gained 3.5 percent to close at $74.13 a barrel. The Friday decline was spurred by China’s bank decision as China has been driving growth in oil consumption in recent years.

Crude Oil For March Delivery February 8-12

Stocks

Trading in Berskshire Hathaway was extremely heavy on Friday on news that Warren Buffet’s company has been included in the S&P 500 index. The share gained 4.4 percent for the week to close at $76.9.

Banking shares also traded heavily on Friday. A judge overseeing Bank of America Corp’s proposed $150 million settlement with the U.S. Securities Exchange Commission (SEC) further delayed a decision leaving attorneys with some questions to answer. Citigroup also spurred high volume trade after announcing that it would ease its foreclosure policies on homeowners. Earlier in the week, S&P ratings agency downgraded its outlook on both Bank of America and Citigroup to negative, from stable, saying bond holders could take a hit if the government steps in again to support banks.

In contrast, S&P reiterated its ‘buy’ rating on shares of Google Inc. after the search engine said it is planning to build high speed fiber optic broadband networks in the U.S. to offer internet speeds 100 times faster than what Verizon Communications and AT&T offer today. After a volatile week, Google’s share finished down slightly at $533.12.

Some of the strong movers in the U.S. were Annapolis Bancorp, which gained 23.82 percent on Friday after strong fourth quarter results. PositiveID Corporation gained 21.4 percent o n Friday, and Soul Centers rounded off the top three gainers with a 20 percent rise on the day’s trade.

The world’s top two diversified miners, BHP Billiton and Rio Tinto, reported better than expected fourth quarter financials, and named the executives which will head their iron-ore joint venture. BHP shares gained 4 percent on the week in London, while Rio rose nearly 6 percent.

The Fundamentals

The People’s bank of China on Friday raised the share of deposits that banks must hold as reserves in a move designed to place further restrain on bank lending. The decision, the second of its kind within a month, marked Beijing’s latest attempt to rein in last year’s stimulus program, which at the time motivated a spree of lending in the country, which fueled economic growth, but which now threatens to inflate dangerous asset bubbles. The central bank’s announcement sparked concern amongst investors that China might slow down its economy to the extent that it impacts the global recovery.

With Greece’s debt woes weighing heavy across the continent, Eurostat reported Friday that gross domestic product (GDP) in the 16-nation euro-zone increased by 0.1 percent in the fourth quarter of 2009. The same unenthusiastic rate was posted for the 27 members of the European Union as a whole. Analysts pointed to a weak labor market and soft consumer spending in explaining the low growth. While most do not expect Europe to fall back into recession, they don’t expect a boom any time soon. For the year, GDP fell 4 percent in the euro zone and 4.1 percent in the European Union.

Meanwhile European leaders did little to boost confidence when they met on Thursday to address the need to fiscally support Greece. While they emerged with a pledge of support, they failed to provide a concrete plan to the frustration of investors. These factors sparked added concern about the riskier euro currency and investors turned to the dollar for better security.

At the same time, the U.S. Commerce department reported that January retail sales rose a better than expected 0.5 percent from a year earlier. The report indicated that consumers spent more on essentials and luxury items and fueled improving expectations for first quarter economic growth. The news was balanced off by the Reuters/ university of Michigan Surveys of Consumers, which showed that consumer confidence fell slightly in February as worries over unemployment still weighed on spending.

Elsewhere, Australia came through with strong employment growth figures for January as the country has now created close to 200,000 jobs since August. At 5.3 percent, unemployment is now at its lowest level in a year. Still, Treasury Secretary Ken Henry warned that the economy has some way to go and not yet at full capacity.

The Week Ahead

Turning to next week, European Finance ministers will meet on Monday and Tuesday as markets anxiously await more details of their plans to assist Greece in its debt woes. Details surrounding the EU’s bailout will likely continue to have a profound impact on financial stability across the globe.

U.S. markets will be closed Monday for President’s Day, while Chinese markets will be taking a long weekend for the country’s New Year holiday.

Later in the week, U.S. manufacturing and housing starts will likely dominate economic headlines. Retailers, most notably Wal-Mart, will report fourth quarter results, which should shed further light on how strong Christmas was for U.S. economy.

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