Sunday, February 14, 2010

Stock markets fluctuated all around world

The U.S. economy had little to reveal this week, where a lack of fundamentals throughout the week led investors to focus on global issues including Greece’s debt problems, and accordingly pessimism over the outlook for global growth dominated investors, and accordingly equity indexes fluctuated heavily during this past week.
The U.S. Commerce Department released this week the trade balance for the month of December, where the trade deficit widened beyond expectations to highlight the downside effects of the rising dollar, where the U.S. dollar started to gain momentum recently against major currencies, while lower demand levels from all around the globe also weighed down on the trade deficit.
According to this we should expect a lower contribution from net exports to the GDP estimate in the fourth quarter, though the U.S. economy was able to expand by a staggering rate amid the ongoing support from the U.S. government alongside the recent improvement in economic conditions, yet the real question here, will the economy be able to sustain such a staggering growth level over the upcoming period.
The answer to that question is rather clear, the U.S. economy won’t be able to sustain such a staggering rate since elevated unemployment and tightened credit conditions will continue to weigh down on economic growth in the world’s largest economy, and it will probably take a long time before the U.S. economy can go back to meet its long term growth potentials.
Moreover, the U.S. Labor Department released the weekly jobless claims, where the data released indeed signaled some improvement and this comes inline with the recent figures released from the labor market, where conditions started to improve over the past few months, as unemployment dropped to 9.7% and the pace of layoffs seem to be easing noticeably, and as a matter of a fact some employers started to hire new workers again, though the pace of new hiring remains rather weak.
The retail sales index signaled that consumer spending improved amid the holiday season, where retail sales increased in January after falling back in December, where the huge discounts seemingly lured consumers, this indeed signals an improvement in consumer spending, since retail sales accounts for more than 50% of consumer spending.
Spending though remains somehow weak even as it has been improving recently, yet it remains subdued amid elevated unemployment, tightened credit conditions, lower income growth, and diminishing households’ wealth, yet spending should continue to improve gradually over the upcoming period as conditions continue to improve, and accordingly we should expect the U.S. economy to continue to grow over the course of this year unless of course something else happens that changes the course of recovery.
Confidence however retreated in February, where the University of Michigan confidence index signaled that consumer confidence dropped back to 73.7 well below the prior and expected estimates, as even though the economic conditions index improved, yet the outlook for the economy deteriorated, meanwhile, the 1-year inflation expectations index eased to 2.7%, and the 5-year inflation expectations index eased to 2.8%.
Meanwhile, the Federal Reserve Bank’s chairman, Bernanke, signaled that the Feds have several tools that will help withdraw excess liquidity from markets, however, Bernanke still believes that it’s early to undertake such a stance, since he signaled that interest rates will remain at low levels for some time, as the Feds need to make sure that economic conditions are indeed stable before they start to tighten their monetary policy.
The U.S. dollar gained huge momentum against major currencies this past week, where investors focused on Greece’s debt problems, where the swelling budget deficit in several countries including Greece, Portugal, and Spain are perceived as a risk for economic growth in the Euro Zone economy, this indeed led investors to worry over the outlook for global growth and accordingly investors shed their risky assets and opted to invest in lower yielding assets including the dollar, and that provided the dollar with huge momentum to rise against major currencies.
Despite the recent improvement in financial markets, yet confidence remains rather fragile, where investors are still worried that their might be more ramifications from the worst financial crisis since the Great Depression, and we shouldn’t expect investors’ confidence to return back to normal, since they are yet to believe that global economies are out of the woods yet.
Stock markets fluctuated heavily over the course of this week, where U.S. companies continued to report mixed earnings, yet the dominant factor was the rising fears over the outlook for global growth, and investors shed risky assets on concerns related to Greece’s debt problems and China’s decision to tighten its monetary policy, where the latter was seen as a threat to the pace of the recovery.
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