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Market Fundamentals and the Week Ahead




Stocks were battered as protests against the Greek government’s austerity measures claimed three lives while concerns rose that the country’s debt crisis will spread across Europe. 


Euro-zone leaders agreed to a EUR 80 billion rescue package for Greece, with the International Monetary Fund fitting another EUR 40 billion, the first payment expected before May 19. Greece agreed to EUR 30 billion worth of additional wage cuts and tax hikes, while Prime Minister George Papandreou called on citizens to endure more sacrifices. These led to state workers to take to the streets in protest.


European Central Bank council member Axel Weber said there is a threat that Greece’s fiscal crisis may spread to other countries in the region. Moody’s Investors Service said it may cut its credit rating for Portugal as the country struggles to reduce its deficit. Spanish Prime Minister Jose Luis Rodriguez Zapatero dismissed speculation about a bailout for Spain saying the nation has strong solvency. European Central Bank President Jean-Claude Trichet resisted taking any new steps to stem the spread of the crisis, saying the onus is on politicians to cut budget deficits.


The U.S. government’s April jobs report gave mixed signals as the economy added 290,000 jobs during the month, the most in four years. However, unemployment rose to 9.9 percent, from 9.7 percent, as more people entered the labor market to seek employment.


Other reports confirmed a positive trend in the U.S. with consumer spending up 0.6 percent in March and personal incomes increasing 0.3 percent. Manufacturing rose in April, according to The Institute for Supply Management, while the Commerce Department reported that the country’s factory orders rose 1.3 percent in March. The National Association of Realtors noted a 5.3 percent rise in signed home-purchase agreements in March.



The People’s Bank of China said the reserve requirement will increase 50 basis points from May 10. The government reportedly raised the reserve ratio for financial institutions as it seeks to rein in credit.


A survey of 400 companies showed that Chinese manufacturing grew at a slower pace in April, a sign that government efforts to curb economic growth may be effective. Elsewhere, Australian Prime Minister Kevin Rudd announced a 40 percent tax on resource from 2012 to help the government pay for additional hospitals, retirement benefits and company tax reductions.


The Week Ahead

Investors will be eyeing Europe again this week to monitor further developments in the debt management of euro-zone countries.


In the U.S., the Commerce Department will release its trade report for March on Tuesday giving indication of import and export trends. April retail sales on Friday will signal the state of consumer spending for the month, while industrial production figures will indicate the physical output of US factories, mines and utilities. Friday’s business inventories report will show sales and inventory statistics across the manufacturing, wholesale, and retail sectors.


The Bank of England will announce its monetary policy with regard to May interest rates on Monday. The European Union’s industrial production will indicate changes in the volume of output for the EU’s 16 member states in March.


In Asia, the Bank of Japan will host its monetary policy meeting for May, while China’s April trade data will signal import and export trends through the country. China’s April retail sales data are also scheduled for release.

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