12.10.12 Friday Morning

This week will likely be remembered for a tug-of-war between Spanish officials resisting the need for a bailout and investors requesting high yields on Spanish debt. 

Monday began with misery hanging over the markets as investors had to grapple with news that the World Bank had cut its growth forecast for Asia as well as expressing specific concerns over China’s current growth rates.

However, bulls managed to push some optimism through the markets based on rumours that Chinese policy officials were ready to stimulate the economy again, if growth rates continued to falter.

Tuesday proved a landmark day for Greece.  The German Chancellor, Angela Merkel, made her first visit to Greece since the financial crisis began.  Riots persisted, buildings were damaged and arrests were made.

Despite this, strict austerity measures and catastrophic Greek debt levels still remain.  ECB President, Mario Draghi’s, speech also managed to antagonise Euro bulls resulting in the Euro dropping its earlier gains.

This was due to investors snubbing Draghi’s oral commitment to the Euro and little in the way of actually announcing further steps to help persuade Spain to accept the ECB’s help.

Midweek we observed rating agency Standard and Poor adding fuel to the fire and downgrading Spanish debt to just above junk.  The IMF tried to counter this by reiterating their offer of support to Spain.

Conversely, Spain’s response was to remain rigid, or what some would argue to be dogmatic, against resisting a bailout.  Debt-ridden states like Greece and Spain were almost awarded further support from the IMF on Thursday as policy makers argued paying back debt too quickly would only prove counterproductive in the long-term.

However, export champion and Eurozone giant Germany immediately vetoed such a possibility and advocated the need to be consistent with liabilities in order to maintain financial credibility.  Some would argue a dubious reaction from Europe’s largest creditor.

Friday’s trading session was a reminder of the general theme of the markets this week, which was low volumes and tight ranges.

The previous session’s bullishness caused by positive US weekly unemployment figures fizzled out as weak construction data from the UK took precedence and spoilt investors’ appetite for risk.

Investors could dig deep and find some optimism if consumer sentiment figures from the US, due for release later today, are better than expected.

An indication from a respected consumer survey may be enough to justify a positive, albeit likely to be relatively flat, finish to the trading week.

Equity of the week would probably be given to the FTSE250 stock Bumi.

The mining company’s shares rose 40% on Thursday after receiving a three-part proposal to end the volatile relationship with the Bakrie Group.  Furthermore, Bumi also enjoyed a 13% lift on Friday as opportunistic investors continued to see bargains in a company so heavily hit by selloffs in recent times.

Next week investors can enjoy a raft of global data.  CPI figures from China, retail sales from the US and a key 10-year bond auction from Spain should provide enough data to whet or appease investors’ appetite for risk.