There were genuine signs of emerging optimism in stock markets last week. Confidence has been largely absent so far in 2009, with every attempted rally squashed before it really had chance to get going. There is a growing sense that this time round things are different, and this belief will only grow further, if markets can survive the next week or so without dropping too far below last Thursday’s low. The next few weeks could be a real test. If markets are able to maintain these levels without giving up too much ground, then more buyers might come out of hiding and the recovery could gain momentum.
Last week, General Electric had its credit rating cut, but this has been largely telegraphed over the last few months, and the cut appears to be less than initially feared. This coupled with signs of stability in US retail sales pushed markets higher.
The euro enjoyed a strong week against the dollar and pound, pushing sterling to its lowest levels since 2008. UK gilts endured a volatile week as the Bank of England turned on the printing press. Currency markets are taking the view that UK PLC has a rather large hole it its pocket, a hole which is getting larger as the global crisis develops. The weak pound isn’t bad news for all British companies though, with BP benefitting from a stronger dollar and higher oil prices, and rising strongly. Oil closed the trading week with a slight gain, but this could all change with Sunday’s OPEC meeting.
Financials enjoyed a positive week, with the insurer Standard life and HSBC among the standout performers. One of the catalysts was the Citigroup profit outlook, which indicated that the company is set for its best quarter since it last made a profit in 2007. The stock rose 75% on the news, and helped push up other financials in the process. Despite last week’s rally, Citigroup is still in the realms of being a penny stock.
Whether this turns out to be a bear market rally, or a true reversal point, remains to be seen. Since October 2007 there have been eight 5% plus days on the S&P 500. Excluding Tuesday’s blast off, in all the previous instances the rallies were short lived, and the sellers took control once more. Last week the IMF warned of a great recession, and Meredith Whitney sage of the credit crunch, is warning that credit cards will be the next financial crisis to break.
This week’s highlights include the release of the last MPC meeting minutes on Wednesday morning, and the FOMC statement in the evening. There is also a raft of inflation data with US PPI on Tuesday, and CPI on Thursday. Fed chairman Ben Bernanke, finishes off the trading week with a speech on Friday afternoon.
While it is unlikely that the bears have been forced into hibernation for good, last week’s rally was a promising change of sentiment. A no touch trade predicting that the S&P 500 won’t revisit the lows of 660 in the next 60 days could return 44% at BetOnMarkets.
