The half year report card for global stock markets was not one to be proud of.
The first half of 2008 was the worst first half to a year for the Dow Jones
Industrial Average since 1970, when the index was down 14.60%. The 14.44%
decline of 2008 is actually the tenth worse performance since 1900. July
hasn’t exactly started off with a bang and US traders may be thankful for the
long weekend last week. The S&P 500 closed the week down 1.19%, registering
its lowest daily close for almost two years. June was especially hard for US
markets with a drop of 8.55% for the S&P 500, and a 10.19% collapse on the
Dow, making up most of the years losses to date.
The culprits are not too hard to find. The first half performance of the US
financial sector was -30%, while the Energy sector managed to find a rise of
8.12%. If you were asked to list the top dangers for the global economy, you
would be hard pressed to find any factors that are not already playing
themselves out. Firstly we have oil prices that seem to reach new record
highs with each passing week. $150 per barrel is looming ever closer. This
price action is linked to the second danger, further conflict in the Middle
East. Last week, a former Israeli air force commander was quoted as saying
that Israel was ready to attack Iran if diplomacy fails. The Iranian oil
minister has responded by saying that Iran is ready to defend itself, and
that an attack on Iranian nuclear facilities would be the start of war.
Oil fuelled inflation is still causing central bankers headaches, with Citi
Group today predicting that UK inflation jumped to 4.6% in June. Last week,
the ECB went to great lengths to stress that the recent rate hike didn’t
automatically precede a series of hikes. Nevertheless, Trichet’s firm stance
on fighting inflation has caused some disagreements between the ECB and the
Federal Reserve in the US. The final horseman of the apocalypse could be when
the global economy finally yields to the pressures of inflation and the
aftermath of the credit crunch. There are increasing signs that the world’s
largest economy is slowing. Thursdays US payroll figures showed a 20%
increase in unemployment year on year. Also Non Farm Payrolls shrank for the
6th consecutive month. With UK house prices going the same way as the US
market, the bricks and mortar ATM is no longer paying out, and UK households
are already at record levels of indebtedness. Shocking figures from Marks &
Spencer last week was testament to this.
The week ahead is a quieter affair with fewer top tier announcements than the
week just gone. That said, there are still some potential market moving
datasets due. UK industrial and manufacturing production figures are released
on Monday morning. The recent Purchasing Managers Index monthly survey of UK
manufacturing was described as “truly dreadful”, with indications that this
sector at least may be heading for a recession. On the same day, we
provisionally have the UK Halifax Price Index delayed from last week. On the
same note, US pending home sales are released on Tuesday. Bad news is
expected for both, the only question being how bad the news actually is.
The week’s top ticket trading is the MPC interest statement on Thursday. The
Bank of England is still stuck between a rock and a hard place, with record
oil prices driving inflation, and slowing consumer spending hurting the
economy. A no change verdict is widely expected to be the more likely course
of action.
With next week being relatively lighter on the economic news front,
BetOnMarkets.com thinks that it may be a good time for a trade that looks to
profit from low volatility. A barrier range trade wins if neither of two
levels are hit within the specific time period. A barrier range trade
predicting that the FTSE 100 will not touch 5016 or 5875 in the next 16 days
could return 10%.
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