This week started off on a familiar note as the selling pressure we’ve seen since May continued for many global markets. While relatively in line, Chinese economic data gave markets a boost on Tuesday, but Greek debt concerns brought sellers back into the spotlight.
In addition, more disappointing economic data out of the United States such as the Empire Manufacturing Index, the Philly Fed Index, Industrial Production Index and the University of Michigan Consumer Confidence Indicator all added to recent concerns that the U.S. and global economies are growing at a much slower rate than the market would like to see.
Greece has been a big problem for a long time and news headlines about the country’s debt woes never cease to flow. This week was no different as the International Monetary Fund and the European Union continue to work hand in hand with Greece to find some sort of realistic bailout solution.
Some progress has been made which resulted in the Greek Prime Minister replacing his finance minister, but he also contributed to the uneasiness of the market by calling for a vote of confidence in the Greek parliament this weekend. S&P downgraded its rating on Greece this week to CCC, but the market has been miles ahead of the rating agencies for a long time, so the downgrade was viewed as pointing out the obvious rather than a surprise.
On the corporate front, Canadian investors could not help but notice Research in Motion shares fall considerably on Friday after reporting quarterly results that met revised expectations, but also dramatically reducing full year fiscal guidance from US$7.50 per share to a range between US$5.25-US$6.00. The company also announced what it called a “headcount reduction” and alerted the market that some of their upcoming product launches could be delayed. Overall, there were few positive takeaways from the quarter which caused many analysts to cut their price targets and ratings.
While gold prices finished the week slightly higher, oil futures had a difficult week falling about US$7.00 per barrel to levels we haven’t see in a few months. Considering that weakness it would be natural to assume the Canadian dollar would fall in sympathy. However, the loonie basically finished the week where it started, close to the US$1.02 level.
A Flat Tire for Research in Motion in the U.S.
While Research in Motion technically beat revised earnings expectations on Thursday, the market simply did not care as fiscal Q2 guidance was dramatically revised downwards. While new product and new software integration delays have popped up recently as reasons for RIM’s extremely poor share price performance, the company has actually been facing a number of competitive problems for some time. In particular, the rising popularity of the iPhone and smartphones using the Android operating system has eaten away at Research in Motion’s U.S. market share. The company has seen its revenue decline in the United States year-over-year for the past six quarters and with product launches being delayed it is unlikely that we are going to see this negative trend reverse itself in the near future.
The Trading Week Ahead
As we approach the last stretch in the calendar second quarter of 2011, corporate data will take a back seat to what will likely be one of the more eagerly anticipated FOMC meetings this year. While investors are not expecting any change in interest rates when the Fed meets next week, they will be looking for indications about what their next monetary policy moves might be. QE2 will officially come to an end on June 30, although all the money the Fed was supposed to put into the system is likely already there. While few investors are expecting any announcement about another round of stimulus, or a QE3 as it will be called, many are awaiting to hear what the Fed intends on doing with its balance sheet in the near term.
Unfortunately the “Greece overhang” on the markets will not disappear for a while as that country will remain in focus following a confidence vote in the Greek parliament this weekend. Efforts will continue to find a way to keep Greece afloat; however, more and more investors are becoming resigned to the fact that bankruptcy may be inevitable. While such a prospect does not bode well for Greece, it could bode worse for governments and financial institutions that have exposure to Greek debt.
Those fears, along with a recent string of disappointing economic data will likely keep pressure on oil prices next week and could help support gold prices if investors can’t be bothered owning either the U.S. dollar or the Euro. We will see other economic releases next week such as the final print for first quarter GDP in the United States. However, most investors have moved on from Q1 and are more concerned about the outlook for Q2 which could also be disappointing thanks to the two major market shocks of higher commodity prices and the Japanese earthquake/tsunami in March.
@Gareth_RGMP