24.08.12 Friday Morning

This week has been rather subdued for global equities, with most indices struggling to find support against a backdrop of more quantitative easing from the fed, news that China’s growth rate could slow further, and that the room for negotiation available to Greece on its bailout terms looks set to remain narrow. But in spite of an underperforming stock market courtesy of the return of European uncertainty, other so-called risk assets have performed well.

Indeed, the euro and sterling have remained stubbornly well-bid in face of falling stock prices. The euro’s start to the week was stable, trading slightly higher than the $1.2300 level. But as news that the fed was anticipating scope for more easing hit traders’ screens during Wednesday’s session, the dollar was immediately dumped in favour of euros and sterling.

Unsurprisingly, too, commodities jumped on the news, particularly those most highly correlated with inflationary expectations. Gold and silver moved higher in lockstep, with gold breaking $1,650 and silver $30. And as the dollar weakness looked set to persist to at least the end of the week, the euro was selling for $1.2600, some 2.5 percent higher.

But equities, with their high correlation to the euro notwithstanding, were sold for most of the week, presenting investors new evidence that the well-established relationship could fragment. But the selling should be taken into context; U.S. equities when they opened for trading on Monday were falling from four-year highs, so to see more profit-taking in recently outperforming indices isn’t too concerning for bulls, particularly given the persisting headwinds against which they have risen.

Meanwhile, companies news was dominated once again by Facebook, as the shares traded at a fresh all-time low on Tuesday when the stock was selling for less than $19. Director, Peter Thiel, led the selling by unwinding around 20m shares after clearly preferring cash to the company’s future.

Here in London, Basic materials continued their struggle in the face of darkening flash PMI numbers from China, hinting that the slowdown could accelerate. Petropavlovsk reported disappointing 1H results, which saw the shares plummet by approximately 15 percent on Thursday’s open. The company saw 1H profits slump by 90 percent, with net debt increasing by 43 percent.

In Oil & Gas news, the Falkland exploration area received some positive news, as Borders and Southern confirmed gas condensate samples from their Darwin prospect, which helped to see the shares climb above 35p during Friday’s trading.

Next week will start relatively subdued with UK markets closed on bank holiday Monday. We have various figures coming throughout the rest of the week to help establish market sentiment. Prelim GDP and Home Sales figures in the states on Wednesday will be keenly anticipated, along with German unemployment figures and an Italian 10 year bond auction, which will give a good insight into investors appetite for European sovereign debt.
Traders will also be watching Ben Bernanke’s speech closely at Jackson Hole on Friday for any confirmation of Fed easing plans.