March 11, 2011

Market Wrap For The Week Ending 11-Mar-2011

Weekly Snapshot
• Moody's lowered Greece's rating to B1 and said the risk of default is rising (Bloomberg)
• Brent crude oil futures climbed to $118 per barrel on Monday (FT)
• Gold touched a new record of $1,444.95, silver reached a 31-year high of $36.75 (Economist)
• As of Feb-11, 985 Exchange Traded Funds (ETFs) had assets totaling $1.0TN (Statestreet)
• China unexpectedly posted a trade deficit of $7.3 billion in February (AP)
• Moody's Investors Service downgraded Spain's debt rating by one notch to Aa2 (WSJ)
• The Reserve Bank of New Zealand cut interest rates by 0.5% to 2.50% (WSJ)
• The Bank of England kept interest rates at a record low of 0.5% (Reuters)
• The U.S. international trade deficit in January rose 15.1% to $46.3 billion (ESA)
• Forbes 2011 list includes 1,210 billionaires at a combined wealth of $4.5 trillion (Forbes)
• Japanese Yen gained against the US$ and the Euro after earthquake hit Japan (Reuters)
• U.S. index of consumer sentiment fell to 68.2 in March from 77.5 in February (Bloomberg)

Market Barometers

St-2011-0311   fx-2011-0311

Chart(s) Of The Week
This week marked the second anniversary of the darkest point in recent financial history. On March 6th 2009, the S&P 500 fell to an intra-day low of 666.79.   An eerie number at the time but in hindsight, it marked a turning point and the beginning of an unprecedented bull run returning over 90% to investors if they had bought on March 9th 2009 and held their position until today.  Question is of course, who had the guts to buy stocks on that day.  It always seems so easy watching the markets from the rear-view mirror…


Despite this phenomenal rally, some prominent traders, analysts and fund managers have been raising questions as to how genuine the stock market recovery really was considering it has not translated into the real economy by any comparable measure. To get a sense of how stocks could have made such a marvelous recovery, please consider this illuminating chart courtesy of  After so much ammunition (TALF, TARP, QE1, QE2) has been used to prop up asset prices, it also begs the question: What happens when all this ammunition is no longer applied. 


This Just In…Japan’s Earthquake  
The 8.9 magnitude earthquake hitting Japan on Friday sent shockwaves of disbelief around the world.  As Reuters reports:  

The biggest earthquake on record to hit Japan rocked its northeast coast on Friday, triggering a 10-meter tsunami that killed hundreds of people and swept away everything in its path.

Rare events like this one can send massive financial shockwaves too. While the impact on Japanese and global stock markets may not be as imminent, the currency markets witnessed a reaction which may seem counter-intuitive at first.  The Japanese Yen gained against all major currencies when the news of this devastating earthquake hit the wires. 

Why was the Yen rallying on the news? 

Markets assume that vast sums of money may need to be repatriated from foreign assets to pay for damage repairs and re-development costs as a result of this catastrophe. The two charts below show how both the US Dollar and the Euro dropped on Friday during Asian and European market hours.

US$ versus Japanese Yen


Euro versus Japanese Yen





It is still too early to assess the longer term impact on the Japanese economy and its capital markets. In terms of the currency markets, a re-alignment towards the previous trend is often seen once the initial shock is digested.

Good luck and good investing!

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