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By Gaurav Kashyap, Head of DGCX desk, Alpari ME DMCC
Stock markets extended their losses in a shortened trading session on Friday, with the S&P500 closing at 1158.67, its seventh straight day of losses. The weakness was extended as comments emerged from Greece that private holders of debt would need to take larger losses on their holdings as originally expected. News of Belgium's downgrade weighed in on risk sentiments and helped boost the US Dollar Index to a seven-week high. Belgium's downgrade followed Portugal and Hungary's downgrades earlier in the week.
Amidst all the chaos and higher borrowing costs emerging out of Europe, the growth story also added to investor's concerns. Euro-zone PMI manufacturing dropped to 46.4 act v 47.1 prev, while new industrial orders in the Euro-zone slumped to 1.6% act v 5.9% prev (YoY). MoM new industrial orders came in at -6.4% act v 1.4% prev. In a lone bright spot in the week, German GDP showed no signs of a slow down, coming in unchanged at 0.50% as expected while the German IFO business climate survey improved to 106.6 act v 106.4 exp. The survey for current assessment was in line with last month's reading at 116.7.
Record week for Indian Rupee
It was a record week for the Indian Rupee which sunk to an all-time low of 52.73 against the US Dollar this past week but was able to close out the week off those all-time lows as unconfirmed rumors suggesting the RBI carried out small intervention measures through state run banks saw the currency pare some of its losses. The Indian economy is facing several headwinds in the near term future; growth is beginning to drop across the core sectors in the Indian economy and inflation continues to remain stubbornly high, despite the numerous interest rate hikes carried out by the central bank. The auto industry is beginning to slow and like the rest of the world, industrial production has slowed to 1.9% on the back of weakening export demand. The depreciation of the currency was accelerated as a severely weak Rupee would make it particularly attractive for Non Resident Indian's to remit funds back home - seeing an increase in foreign repatriation into the country. A weaker Rupee would do its part to boost exports, one of the main reasons why we have seen that recent IIP number drop to a two year low.
The British Pound came under seige in trading this past week, hitting a six week low against the Greenback. Meeting minutes from the Bank of England's most recent meeting showed that policy makers all agreed to maintain their target asset purchase plan with more easing measures possible if warranted. UK GDP was unchanged at 0.50% as expected.
Gold drops for second consecutive week
Gold dropped for a second straight week, taking out several key technical levels on its way to closing at 1683.45. The precious metal has dipped significantly in the run up to those 1800 levels and it is a particularly curious phenomena considering the current uncertainty in Europe.
Usually Gold is seen as a safe haven in such times, but we are seeing the opposite taking place in the past few weeks. What this hints is that a lot of investors in Gold are sitting on the sidelines and waiting for more developments to emerge out of Europe. Sure we have seen several European governments fall as a result of the ongoing crisis in Europe, but we still do not have any concrete answers as to what extent budgets will be reined in through further austerity measures. European borrowing costs are still high across the board, downgrades continue to come hard and fast and this leads to a severe deterioration in risk moods which naturally sees inflows into the US Dollar.
Staff
