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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Stock Markets Endure Another Volatile Week

Stock-Markets / Global Stock Markets Jul 22, 2008 - 04:28 AM GMT

By: Regent_Markets

Stock-Markets Markets endured another volatile week, with US markets had a better time of it than their European counterparts. There were some clear psychological levels in play last week, as markets fell to fresh multi year lows, before recovering in the second half of the week. The Dow hit 11,000 for the first time since July 2006, and the S&P 500 hit 1,200 for the first time since October 2005. The CAC came close to hitting 4,000 for the first time since May 2005, the Dax hit 6000 for the first time since October 2006, and the FTSE reached its lowest point for over three years.

Markets started the week in promising fashion. News of a bailout for embattled
US Government sponsored banks Freddie Mac and Fannie Mae, hit the wires on
Sunday, buoying the financial sector throughout Europe and the US. Alliance &
Leicester also added cheer when Santander confirmed a takeover proposal,
sending the shares up around 50% on the day. However, the sellers soon gained
traction. A run on regional bank IndyMac Bancorp spurred its collapse over
the previous weekend, and a takeover by the Federal Deposit Insurance
Corporation. Both clients and speculators are pulling their money out of
other regional banks, as panic spreads over the prospect of runs on other
regional banks.

The FTSE 100 was still one of the worst performers of the main global indices
last week. The problem for the UK benchmark index is that it has one of the
heaviest weightings of financial and energy stocks of all the major stock
markets. Oil stocks have come under pressure over the last couple of days and
financial stocks endured a tortuous week. Financial stocks such as Barlcays
and RBS were trampled on as investors fled out of banking stocks and equities
in general. The RBS share price at one point fell below the level it was at
around the time of the much trumpeted takeover of Natwest. At one stage RBS
fell 50 pence below its rights issue and Barclays 40 pence below its share
offering. Investors punished UK banks with the highest exposure to the US.

Towards the end of the week, financial stocks recovered strongly. Traders
bought into the banks, believing they were pushed down too hard too fast. In
the short term at least it looks as though investors are confident that banks
have been beaten down well below fair value, and were stepping in to pick up
some bargains. Better than expected earnings from JP Morgan, Coca Cola, and
United Technologies helped fuel the Wednesday/ Thursday rally further.
Friday's better than expected results from Citi Group helped counter balance
some disappointing results from Merrill Lynch, Google, and Microsoft. The
search giant Google saw Pay Per Click growth slow slightly, but stated that
they were well positioned for a down turn, as consumers go online in search
of bargains.

After the volatility of the last seven days, thankfully the coming week is
much quieter in comparison. The first top tier announcement of note is BOE
governor Mervyn King speaking in the morning on Tuesday, followed by FOMC
member Plosser speaking around Midday. These speeches come ahead of the
release of the minutes from the last FOMC meeting on Wednesday morning. UK
rates policy is stuck between fighting inflation and helping the economy in
difficult times. The minutes will be analysed extremely closely. Thursday
brings UK retail sales, and US existing home sales. Friday is perhaps the
busiest day of the week, with UK GDP figures, followed by US Core durable
goods orders and new home sales in the afternoon.

Despite the late rally off technical lows of many indices, conditions are
still fragile for the global economy. The US Housing Market Index fell to new
lows for July, as the US housing collapse continues to show no signs of
recovery. US CPI figures rose 9.2% year on year. Consumer prices surged the
most since 1982, a time when interest rates were at 15.5%. Such inflation
readings strongly counter the argument for a further rate cut from the US
Government. The stagflation scenario seems to be taking one step closer to
reality, as inflation rockets, and US retail sales growth slows to just 0.1%.

The UK is certainly not immune from this, with public sector workers striking
over below inflation wage increases. Jim Rogers of the hedge fund Rogers
Holdings is famous for accurately predicting that Gold would reach $1,000 and
oil $100. He was less than sanguine about the state of the UK economy. He
recently said “The UK economy has the highest rate of inflation since 1986”
He implied that the UK government had the tendency to massage the figures, so
if they are admitting it's bad “You know it's real bad”.

Last week's late recovery could be a useful point to enter trades predicting
the sell off will continue. A No Touch trade predicting that the FTSE 100
won't touch 6200 at any time during the next 6 months could return 21%.

By Mike Wright
Tel: +448003762737
Url: &

About Regent Markets Group:   Regent Markets is the world's leading fixed odds financial trading group. Through its main multi-awarding winning websites, and, it has established itself as the leading global provider of a unique, powerful way to trade the world's major financial markets. The number, length and variety of trades available to our clients exists nowhere else in the world. Tel  (+44) 08000 326 279

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Do your own due diligence.

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