Week in Review: 17th – 21st June 2013

In last week’s edition of The Advance we almost exclusively covered the Federal Reserve’s meeting of policymakers, suggesting that the beginning of the week would be slow and the backend of the week would be entirely dominated by the results of that meeting. While that was fairly obvious for all to see, very few analysts had predicted just how big the declines would be if the Federal Reserve confirmed that the withdrawal of their monetary stimulus could take place within the next 6 to 12 months.

Monday was dominated by the meeting of the Group of Eight, from which the leaders of the eight most powerful nations in the world concluded that the global economy had weathered the storm and that the worst of the global financial crisis had now passed. This drove stocks in the US and the UK higher, providing something of the buffer as investors awaited the results of the Federal Reserve’s policy meeting.

Tuesday once again saw stocks rise higher as investors began to bets on the outcome of the meeting, with the belief that there would be no tapering off the $85 billion a month monetary stimulus program until mid to late 2014 – which would still have been 12 months ahead of schedule.

S&P 500 17th – 21st June

Asian and European markets had no real opportunity to respond to the Federal Reserve’s announcement on Wednesday as it came after the markets were closed. The Nikkei 225 hit a nine day high prior to the announcement, which was made by Ben Bernanke, the Federal Reserve chairman, while the FTSE 100 snapped its four-day rally to close down by 0.4% as concerns mounted that the news could be worse than originally expected. US stocks declined late in the day, almost immediately after Bernanke’s press conference, closing 1% down.

Thursday saw declines on every major index across the globe as the markets finally had a chance to fully react to the news of the seemingly imminent cessation of US stimulus. Adding to investors concerns was worse than expected manufacturing data from China, raising concerns of an economic slowdown from the Asian powerhouse.

Friday saw the FTSE 100 decline as concerns over the monetary stimulus from the world’s largest economy continued, in addition to increased speculation that the Royal Bank of Scotland may be broken up rather than sold as one entire entity as the British government began to seek an exit from the £45 billion bailout which it undertook in 2008 to stop the high street bank from going under. RBS stocks plummeted 7.2% on the day, leading the index in declines heading into the weekend.

Meanwhile on the other side of the Atlantic, US stocks advanced slightly. While the gains were small they did much to raise morale on the New York Stock Exchange, where the mood had been down during the previous couple of sessions. The S&P 500 and the Dow Jones Industrial Average both make gains of just over a quarter of a percent which investors will be hoping continue into next week, when stocks will once again be challenged by the threat of a reduction in monetary stimulus from the Federal Reserve.