Global Review (Jan 10–14, 2011): “Risk-on” as European debt worries ease

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A combination of successful sovereign bond auctions in peripheral European countries and a positive start to the U.S. fourth-quarter earnings season positively impacted investor sentiment during the past week.

The week’s performance of the major asset classes is summarized in the chart below – a set of numbers indicating investors shunning the safe-havens. The U.S. dollar, Treasuries and gold declined, with equities, corporate bonds and commodities in demand. Brent crude came within a stone’s throw of $100 a barrel and some agricultural commodities hit 30-month highs, raising inflation concerns across the globe.

Click here or on the table below for a larger image.

Source: StockCharts.com

Considering a more comprehensive array of asset types (all futures prices, obtained from Finviz.com), the performance of commodities was mixed, with energy, copper, rough rice and cocoa performing well, but other agricultural commodities and precious metals in the red.

Click here or on the table below for a larger image.

Source: Finviz.com

The performance of various global stock markets is given in the table below in local currency terms for different measurement terms ended January 14. In a reversal of the 2010 numbers, the MSCI World Index (+2.1%) again outperformed the MSCI Emerging Markets Index (+1.1%).

Among emerging markets, India (-4.2%) experienced another bad week as higher inflation and the prospect of further interest rate hikes negatively influenced local sentiment. An increase in its reserve ratio requirement for banks and growth worries also kept Chinese stocks (-1.7) in the red, but Hong Kong (+2.5%) and Russia (+3.2%) performed splendidly. Needless to say, Russian stocks benefited from the strong oil and gas prices.

Better-than-feared government debt auctions in Portugal, Italy and Spain resulted in stock market gains in those countries – notably Spain with a surge of 8.6% – as well as elsewhere in Europe.

The U.S. benchmark indices also advanced strongly, with the Nasdaq Composite Index (+3.9%) leading the pack in making new recovery highs. Last week marked seven consecutive weeks of gains for the Dow Jones Industrial Average and the S&P 500 Index.

Focusing on the S&P 500, 83% of the 500 constituent stocks are trading above their 50-day moving averages (somewhat down from the 93% level reached in October), whereas 92% of the stocks are above the key 200-day lines.

All the global indices in the table are in primary bull markets, trading above their 200-day moving averages. In addition to debt-laden Portugal, two BRIC constituents – China and India – have fallen below their intermediate-term 50-day averages.

Click here or on the table below for a larger image.

Considering a larger group of stock markets (via Emerginvest), top performers last week included Spain (+8.6%), Swaziland (+8.3%), Sri Lanka (+6.2%), Serbia (+5.8%), Macedonia (+5.4%) and Cyprus (+5.2%). At the bottom end of the performance rankings, countries included Tunisia (-12.7%), India (-4.2%), Uganda (-3.0%), Bangladesh (-2.2%), Bermuda (-2.0%) and Indonesia (-1.7%).

Of the 88 stock markets I keep on my radar screen, 64% recorded gains (last week 69%), 33% (27%) showed losses and 3% (4%) remained unchanged.

Despite solid gains since the March 2009 lows, the Tel Aviv 100 Index is the only one trading above its 2007 pre-crisis peak. Mexico, Chile and South Africa could be the next countries to eliminate the bear market losses. The gains still required in order to reach the 2007 bull market highs are: MSCI World 28.5%, MSCI Emerging Markets +15.4%, S&P 500 Index +21.0% (see graph below), Dow Jones Industrial Average +20.2%, Dow Jones Transportation Average +5.1%, Nasdaq Composite Index +3.8% and Russell 2000 Index +6.9%.

Source: dshort.com, January 14, 2010.

Nine of the ten economic sectors of the S&P 500 closed higher for the week, with Energy, Financials, Technology and Industrials performing particularly well. Although the Telecom Services sector was the only one under water, defensive sectors such as Healthcare and Utilities were also lukewarm.

Source: US Global Investors – Weekly Investor Alert, January 14, 2011.

Finally, a handy visual weekly review is provided by Brain Shannon (Alphatrends.net). Please click on the image below to hear his thoughts.

Source: Alphatrends.net, January 14, 2011.

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