Member Article

No fireworks from Jackson Hole

The markets looked as though they would finish the week in stark contrast to their relatively buoyant start. The FTSE 100 began trading around 0.5% lower, similar to losses seen on the CAC 40. The German DAX however continued it’s heavily selling from yesterday, experiencing losses of over 100 points, or more than 2%. It has been suggested that, in addition to poor economic data, extensions of short selling bans in France, Spain and Italy are leading to weakness as the German market is being shorted as a proxy.

Investors were wary ahead of the much anticipated Ben Bernanke speech that would take place mid-afternoon, possibly paring back their expectations that a further round of quantitative easing would be announced. Additionally, a second estimate of US second quarter GDP was due for release later in the day, which many analysts suggested would be revised down from its seasonally adjusted 1.3% to 1.0%.

With today’s equivalent data from the UK showing no change to the flash estimate of 0.2% GDP growth that was announced a month ago, markets were clearly going to be influenced by events from the across the Atlantic. The US GDP data came in as the market was expecting ( 1.0%), and as a result no wild swings were seen in equities. They did however trade lower into the Jackson Hole conference, the FTSE off by 1.5% with banking stocks amid a variety of sectors that were under pressure.

A press release from the conference at 3pm rapidly extinguished hopes of ‘QE3’, Bernanke avoiding to explicitly detail further stimulus measures. The FSTE plunged a further 35 points, losing an additional 0.6% to find itself more than 2% lower on the day. As many commentators had expected, he stated that the central bank still has tools to stimulate the economy but stopped short of announcing further asset purchases as he did in last year’s conference.

In a dramatic turnaround however, just half an hour later the FTSE rallied over 100 points from its lows to break through its opening level of 5131 points. Having been up around 0.2% going into the closing bell, the FTSE managed to finish the day roughly flat, down only 1 point at 5130. The performance in the last few hours of trade was impressive, the huge swings in volatility possibly due to light trading volumes during this holiday period.

The CAC and DAX closed down around 1%, with the S&P and Dow Jones up around 0.8% and 0.6% respectively at the time of writing. With the FTSE managing a 1.8% gain over the last five trading days, this was perhaps a better week than many would have previously envisaged.

This was posted in Bdaily's Members' News section by John Dance .