Stocks Down, Gold and Crude Oil Up

By: Regent_Markets

Financial markets were a sea of red numbers last week as the classic ‘Fade the Fed' trade played out. The initial reaction to Wednesday's US interest rate decision was neutral to positive, then the selling set in and hardly stopped. Thursday's mini rally did a very poor job of papering over the cracks in the global economy.

On Friday those cracks were wide open for all   to see with housing and financial stocks hit the hardest. Barclays in
  particular was back to square one, erasing all gains from the start of the
  week, as investors took a second look at their fund raising plans in light
  of Goldman's predictions of further write downs for major western banks.
  Citi Group was also floored on similar sentiment, falling to its lowest
  level since 1998.

The Dow Jones Industrial average ended the week down 4.2% and nearly 8% down
over the last fortnight. The FTSE faired little better, falling 2.88% on the
week and 6.26% over the fortnight. The twin evils of Gold and Oil were again
the sectors in demand, as investors looked to profit from further economic
turmoil, and hedge their bets against inflation. Oil refused to budge below
$130 and set a new all time high of $143. $150 a barrel, scoffed at by some
just a few months ago, is looking increasingly more likely and is surely now
only a matter of time.

Some positive cheer came with US consumer spending rising as Bush's stimulus
cheques hit. While this lift at least created a pause from the continuous
stream of bad news, market participants were wary of reading too much into
what may be a short term patch for the US economy.

Despite a shortened trading week with Independence Day on Friday the 4th of
July, it is a very busy week ahead. Currency markets will be eyeing
Thursday's ECB interest rate decision and accompanying statement. The
European Central Bank is expected to raise rates by a quarter of a percent to
4.25%. With this starting to be priced in already, market participants will
be more interested in the prospects of a string of inflation fighting rate
rises from the ECB.

Thursday also sees the all important US Non Farm Payroll data brought forward
a day because of the holiday on Friday. This more than anything could have
the greatest impact on currency and equity markets for the new month of July.
The UK certainly doesn't escape without any top tier data with two lots of
house price announcements. Nationwide release their data on Tuesday and The
Halifax House Price index is tentatively planned for Thursday.

The news is expected to be dire from both these announcements with Stephen Nickell, the
head of the Prime Minister's housing planning unit predicting that the UK
housing market won't boom again until 2015. To make matters worse, recent
data shows that British households are more indebted than any other country
in recorded history. 173% of household incomes are owed in debts. This is
higher even than Japan's peak in 1990 that preceded decades of deflation.
Barclays added to the gloom by warning their clients to prepare for the
financial storm ahead.

While Thursday was an impressive sell off, doubts remain whether the ‘puking'
point has been reached just yet. Bottom feeders will start to become
interested, but the VIX options volatility index is still some way off the
January and March spikes. In addition we are not seeing the same flight to
safe havens such as short term fixed income, that we saw in the first
quarter.

According to BetOnMarkets traders, with Gold bottoming around $860 and
  renewed concern over inflation, it is perhaps time for the precious metal to
  follow its evil twin, oil higher after a few months in the doldrums. A One
  Touch trade for Gold to hit $1000 again within the next two months could
  return 70%.

By Mike Wright
Tel: +448003762737
Email: editor@my.regentmarkets.com
Url: Betonmarkets.com & Betonmarkets.co.uk

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