The melt up of the equity markets was put to the test over the past two trading session as indecision in Europe and divergent comments led investors into the dollar and created volatility for the Euro currency. The strength in the dollar and an overhang of inventory also pushed crude oil down on the day and created a close below $80 dollars a barrel. The S&P 500 Index closed up 1 point to 1166.
Leaders of the euro zone announced that they would back a deal where the they would back stop Greece along with assistance from the IMF. In essence they would create a safety need and back the collateral that Greece would put up which would reduce the cost of Greek debt. This agreement came on the heels of comments from ECB president Jean-Claude Trichet in which he stated that the IMF has no place in assisting European countries with any specific fiscal issues. Both Germany and France made the IMF’s involvement a condition of their participant in a Greek bailout. The agreement suggests that Greece’s financial troubles are forcing the euro zone into greater economic coordination which has been resisted in the past. Although not an immediate bailout, the agreement lays the groundwork for a moderating of restrictions on bailouts amongst countries which have been an aspect of the European Union since inception. Although the EUR/USD was able to rally more than a big figure today on the news out of the EU, the currency pair has taken out support levels at 1.3540, which will most likely become strong resistance for traders who are willing to establish short Euro positions. Additionally, the 5 day moving average crossed the 20 day moving average during the week, which could put additional pressure on the currency.
Growth in the U.S. economy for the fourth quarter of last year was slightly less than earlier estimates, according to the Commerce Department. Gross domestic product rose at a 5.6% annual rate in the fourth quarter of 2009. Corporate profits climbed 8.2% in the fourth quarter, lower than the 13.8% increase in the third quarter. Year over year, earnings were up 51.8%. , GDP was initially reported at 5.9% and was mainly reduced due to downward revision to consumer and business spending. Additionally on Friday, The Index of Consumer Sentiment from the University of Michigan was unchanged compare to last month at 73.6 for March 2010. Consumers perceive gains in the overall economy and expect the economy to continue to improve.
In the U.K. business investment deteriorated in the 4th quarter of 2009, showing that corporation have little confidence that the UK economy with continue to improve. Business investment totaled £27.3 billion ($40.45 billion) in the 4th quarter, the lowest level since the first quarter of 2000, according to the Office for National Statistics. Business investment is a direct input into GDP which gives investors some insight into next week’s final reading on growth.
On Monday the EMU will release consumer confidence, expectations are for an index level of -17 compare to last month’s -17. Later on Monday the US will release Personal Income and Consumption.