Financial Market Review – What Happened Last Week and What Might Happen This Week

U.S. stocks rallied, driving the Standard & Poor’s 500 Index to its best weekly gain since December, amid speculation European and American central banks will join China in trying to spur economic growth. The S&P 500 rose 3.73 percent to 1,325.66, rebounding from a 3 percent slump last week. The Dow Jones Industrial Average climbed 435.63 points to 12,554.20, the biggest increase since Dec. 23, after dipping below its 2011 closing level on June 1 amid a worse than-forecast jobs report. The optimism comes from the belief that there is going to be some kind of coordinated activity from central banks.

Economic reports sent out mixed signals, with a measure of service industries showing a surprise increase while factory orders unexpectedly dropped. Optimism grew that Europe was making progress on its debt crisis. Finance officials will hold discussions this weekend on a potential bailout of Spain as the nation is poised to become the fourth of the 17 euro-area countries to require emergency assistance.

Asian stocks were assorted this week, ending a five-week streak of declines, as global policy makers in the U.S., Europe and China signaled they would take steps to stimulate growth. Shares pared gains on the last day of the week amid concern China’s economy is slowing. Japan’s Nikkei Average gained 0.23 percent this week rebounding after the gauge plunged to its lowest level since 1983 and entered a bear market on disappointing U.S. jobs and China services data. Hong Kong’s Hang Seng Index slid 0.3 percent, while China’s Shanghai Composite Index retreated 3.88%. Taiwan’s Taiex Index lost 1.5%, while South Korea’s Kospi Index rose 0.06%

 European stocks posted their biggest weekly advance in four months as China cut interest rates and the European Central  Bank said it’s ready to add more stimulus if the economy worsens. ECB President Mario Draghi, who kept the benchmark interest rate at a record low of 1%, left the door open for further stimulus measures, while highlighting the limitations of the ECB’s tools in countering the region’s financial turmoil. A report on June 6 showed the euro-area economy stalled in the first quarter as companies cut spending to weather the debt crisis, offsetting a gain in exports. Gross domestic product in the region was unchanged from the fourth quarter, when it declined 0.3 percent. In Germany, Europe’s largest economy, a report showed exports declined 1.7% in April, for the first time this year.

Asian currencies gained this week for the first time since April on optimism stimulus measures in the world’s largest economies will support regional exports.

On the global arena along with the Greece election results, all eyes are on what will happen with Spanish banks over the weekend. Spain is expected to ask the euro zone for help with recapitalizing its banks, a deal that could ease the markets’ most immediate concern about the region’s financial crisis. The euro zone’s finance ministers will hold a teleconference to discuss the request, which at minimum could cost USD 50 billion, according to the International Monetary Fund.

The upcoming US economic calendar includes data on producer prices and retail sales on Wednesday. Reports on the consumer price index and initial weekly jobless claims are set for Thursday. Data on Friday includes Empire State manufacturing and US industrial production.

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