The relative calm that had descended over the troubled skies of Europe ended on Friday with investors rediscovering their lack of confidence in the Eurozone economy. Eyes turned towards Spain, which accounts for approximately 11% of the total output of the Eurozone had disappointing bond auctions seeing the yield on its 10-year bonds reach 5.99%, rising from 5.74%. Rising yields are fueling fears that Spain will become the next eurozone nation to require a bailout and the increasing dependence by Spain on ECB emergency loans is worrying investors. Germany, the largest economy of the 17 member states, saw its cost of borrowing fall to only 1.72%, highlighting the gulf between the secure and insecure economies.
The result on Friday was a selling off of the Euro – down 0.84% in the EUR/USD pairing, trading at 1.3077. However, stocks dropped too, with many indices ending the week on a negative. The Dow Jones ended 1.05% down, valued at 12849.59, the Nasdaq composite closed 1.45% lower, valued at 3011.33, whilst the biggest falls were seen in the DAX – down 2.36%, valued at 6583.90 and the Cac40, down 2.47%, settling at 3189.09.
China, the world’s 2nd largest economy after the US, reported that its economy grew at its slowest pace in the last quarter for nearly three years. Gross domestic product grew by an annual rate of 8.1% in the 1st quarter of 2012, considerably down from 8.9% in the three months prior and noticeably less than the expected 8.3%. The disappointing figures from China only highlighted the reduced demand from Europe and the US. The US reported weekly initial jobless claims reaching 380,000, above the expected figure of 355,000. Although Federal Reserve Chairman Ben Bernanke spoke publicly on Friday, no mention was made of changing the US monetary policy which saw investors abandon stocks globally.
On Monday, look out for the release of US retail figures for increased volatility and I can also envisage some movement towards safe havens like Gold and Silver who also suffered on Fridays trading.
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