As August draws to a close, the market has generally stayed upbeat this week, brought about by recent US and Europe developments.
Asian indices ended the week down with Japan’s Nikkei lower by more than one percent, down from Thursday’s three-month high and ending its two-week run.
Events Affecting the Financial Markets
Mid-week talks presented by St. Louis Fed President James Bullard and Chicago Fed President Charles Evans downplayed possibilities of propping up the US economy through another round of QE. Both Fed chiefs are policy nonvoters.
On the other hand, Fed Chairman Bernanke’s letter response to a US Congressional Committee inquiry displayed an opposing view. According to the letter, Bernanke sees “scope for further action by the Federal Reserve to ease financial conditions and strengthen recovery,” but “monetary policy is not a panacea, and policymakers in many different arenas should carefully examine steps they could take to foster a more vigorous recovery.” Wednesday’s Fed minutes indicated an active discussion of QE3 between the policymakers and consideration of a new round of bond buying “fairly soon.”
Bernanke’s response was well-received by the market: S&P 500, the Dow, and the Nasdaq all closed higher Friday. News of Spain’s negotiation for aid and speculation of ECB taking on yield band targets also helped global stock markets higher. Notwithstanding the upbeat sentiment, US main indices closed slightly down for the week, ending a string of consecutive weekly gains: six weeks for S&P 500 and Dow, and five weeks for Nasdaq.
Commidities
Following a seven-day rise to nearly 5-month high, gold clinches its best week since January on US stimulus hopes. Crude oil prices fell on Friday on a report that International Energy Agency chief has agreed to Strategic Petroleum Reserve release, shortly after dismissing the possibility for such an SPR release. Meanwhile, copper climbed one percent, reaching a one-month high on Thursday.
Forex
On the currency front, Euro had another week of gains. EURUSD reached a seven-week high, spurred by talk that Spain is under negotiations for international aid, and speculation that the European Central Bank was considering placement of yield level targets for its bond purchases. EURUSD hit a 1.2589 high on Thursday, a price last reached in early July. On the other hand, USDJPY closed 0.3 percent higher to 78.69 yen.
For the last week of August, the market is eagerly awaiting developments of the Federal Reserve annual meeting of central bankers at Jackson Hole, Wyoming. With a smattering of economic data, the focus is on central bankers Bernanke and Draghi with the week concluding with Bernanke’s speech on Friday.
