JULEX WEEKLY REVIEW 10-14-2012: Equity Markets Dropped on Uncertainties over Potential Spanish Bailout

Top Stories Last Week

  • Equity Markets Dropped on Uncertainties Over Potential Spanish Bailout

The uncertainties over Spain weighed on the financial markets, dragging global stocks lower for the week. The Standard & Poor’s 500 Index lost 2.2%, MSCI EAFE index dropped by 1.8% and MSCI emerging market index declined by 1.6%.  Gold was down by 1.5% while GSCI commodity index rose 1.1% as a result of rising oil prices.  In the bond markets, Barclays US Treasury index gained 0.5% and US high yield bond was up 0.1%.

  • S&P Cut Spain’s Government Bond Credit Rating to BBB-

Standard & Poor’s downgraded Spain’s sovereign debt by two notches to BBB- on Wednesday, leaving the country on the cusp of junk status, or below-investment grade. That could make it more expensive for the Spanish government to borrow money and may push Spanish government closer to requesting a European bailout.

  • JP Morgan Reported a Record Quarterly Profit

JP Morgan Chase, the biggest U.S. bank by assets, reported a record quarterly profit of $5.7 billion for the third quarter, up 34% from the same period a year ago. Earnings were $1.40 per share, beating the $1.21 consensus by a large margin. But the results included big one-time items. The bank lost at least $449 million on an earlier wrong-way credit derivatives trade called “London Whale”. The total losses from the trade accumulated to over $6.2 billion.

  • US Consumer Sentiment Index Jumped to a Five-year High

The Reuters/Michigan Consumer Sentiment Index spiked to a five-year high of 83.1 in October from 78.3 last month. Rising equity markets and housing market recovery have helped boost consumer confidence. This may give an early indication on a good holiday shopping season for retailers.

Top Stories to Watch This Week

  • Earnings Week

Many US bellwether companies such as Citigroup, Goldman Sachs, Morgan Stanley, Intel, Coca-Cola and Kroger will report quarterly earnings this week.

  • Chinese GDP and Inflation Report

China will report third-quarter GDP on Thursday. Economists expect the Chinese economy slow to 7.3%.   Also, the Chinese CPI inflation rate in September is expected to slow down at 1.9%.  How slow the Chinese economy is has become the market focus recently.

  • US Retail Sales and Housing Markets

US retail sales are expected to improve given strong consumer confidence. The housing starts and existing home sales data are likely to give further indication of housing market recovery.

  • EU Leaders Meeting

European Union leaders will meet on Friday to discuss the implementation of growth compact and closer economic and monetary union. The issues with Spain’s bailout and Greece’s second tranche bailout may also be discussed.