So where to for financial markets after last week’s surge in volatility and fear?
After the rallies late Thursday and then on Friday night our time, markets should start the week on the front foot today with solid gains.
Our market is looking at a gain of more than 60 points, according to the futures market.
The Aussie dollar ended just under 87.50 USc, gold eased and oil rose for the first time in a few days, and it wouldn’t surprise if it enjoys a rally for a few days this week.
But iron ore remains wobbly and it wouldn’t surprise to see it retrace back under the $US80 a tonne, taking Australian market sentiment with it.
But equally, it could resume its hesitant rally.
Despite that late rally in US and European shares on Friday, most markets fell last week with US shares down 1% for the week, European shares down 0.8%, Japanese shares down 6.1% and Chinese shares down 1.4%.
Interestingly the Russell 200 index, which had led US markets down, rebounded strongly last week, up 2.8%.
But Australian shares, having led on the way down, managed to rise over the last week as investors started to look for bargains.
In fact our market ended up 1.6%, which will surprise a lot of the bears. But then it was quick to fall a few weeks ago while the US market powered higher.
But global shares are now down 7.4% from their September high and Australian shares are down 6.8%, although this has been pared from an 8.9% decline at the low on Monday of last week.
Bond yields continued to slide on global growth fears and on the back of safe haven buying.
In fact bond yields and oil prices are still warning of the looming dangers from deflation. That’s why the late rebound in sharemarkets was nothing but a relief rally that could run for a few more days, or be stopped by the next bit of weak global news.
Commodity prices remained under selling pressure, but the Australian dollar rose slightly as the US dollar pulled back a bit on talk that the Fed may delay the end of QE and/or rate hikes.
The AMP’s Dr Shane Oliver says that helping local sentiment are attractions such as 8% yields on Australian banks which could tempt investors back in the markets.
Late last week, the big banks were some of the main drivers behind the rally, with the National Australia Bank up 3.9% for the week to $33.15. Westpac was up 2.6% to $33.10, while the Commonwealth Bank and ANZ both ended 2.3% higher to close at $76.54 and $31.93 respectively.
“While doom and gloom is now rife, there are some signs that shares may be at or close to a low,” Dr Oliver wrote at the weekend.
“The 8.4% (September top to recent low) correction in global shares is around the size of the average correction seen since the current bull market began in 2011; in fact US and Australian shares have had a healthy correction of nearly 10% top to bottom using intraday data.
“Markets that led on the way down like Australian shares and US small caps have been clawing back in the last few days; the last few sessions have seen US and Australian shares rebound from intraday lows suggesting that bulls may be starting to get the upper hand; investor sentiment is now so bad that its good.
“Our composite measure of investor sentiment in the US having fallen to levels often associated with share market lows ; and the month of October is known for seeing shares start to turn back up after seasonal weakness ahead of a rally into year-end.
“And from a fundamental perspective the fall in share markets has seen shares move well into cheap territory (with the forward PE on Australian shares at around 13.7 times being well below its long term average) and lower bond yields also adding to the relative cheapness of shares,“ Dr Oliver wrote.
On Friday night, the S&P 500 rose 24 points, or 1.3%, to 1,886.76. The Dow jumped 263.17 points, or 1.6%, to 16,380.41. The Nasdaq Composite rose 41.05 points, or 1%, to 4,258.44.
But the Dow and the S&P 500 were down 1% after the brutal sell-offs earlier in the week, while the Nasdaq lost 0.4%. Weekly losses were fourth in a row.
The Russell 2000 dipped 4 points, or 0.4% to 1,082.33. The small-cap index ended the week with a gain of 2.8%.
For the week, the ASX200 jumped 1.6%, or 83.44 points, to 5271.7. The All Ordinaries lifted 1.4%, or 74.4 points, to 5260.1.
On Friday, the ASX200 and All Ordinaries both rose 0.3%.
In commodities, US West Texas style intermediate crude (Light, sweet crude) futures for November delivery rose 0.3%, to settle at $US82.92 a barrel in New York.
On the week, oil lost 3.5% for a third consecutive weekly loss.
December Brent crude in London rose 57c or 0.7%, to finish at $US86.16 a barrel. Losses on the week reached 4.9%, a fourth consecutive weekly fall.
Oil prices started to steady after New York-traded oil briefly traded under $US80 a barrel on Thursday.
Comex gold for December delivery lost $US2.20, or 0.2%, to settle at $US1,239 an ounce. The contract rose for the second week in a row, adding 1.4%.
And December silver dropped by 11c, or 0.6%, to $US17.33 an ounce. For the week, it edged up 0.2%.
