Market meltdown: This week’s highs and lows

5th August 2011

The first week of August is traditionally a quiet month for world markets, but not this week.

On Monday traders waited with baited breath as the Republicans and Democrats battled it out in the House of Congress as to how much more the US should be borrowing.

Late on Monday the House of Representatives (one of the two houses that make up the US Congress) voted to increase the nation's debt ceiling.

The Financial Times (paywall) reported the deal, which would cut spending by $2,400bn over 10 years and increase the debt ceiling until 2013, was due for a final vote in the Senate (the other house making up the US Congress) on Tuesday, where it was also expected to pass with a strong majority. 

On Tuesday the Senate also agreed to the deal.

On Wednesday, the initital euphoria over the deal evaporated and by Thursday markets once again looked shaky, not helped by fears over Italy and Spain defaulting on their debts.

And by Friday morning all European bourses were trading signficantly lower.

But by the afternoon things were looking, up, only slightly fowllowing better than expected US job data.

A week is a long time in the markets, but what should investors expect over the next few months.

Bill McQuaker, head of equities at Henderson Global Investors, reckons politics have spooked the market.

"We've seen unseemely wrangling in Europe over the Greek bail-out deal and in the US unseemly wrangling between the President and Congress over raising the budget ceiling.

"Both these things have caused consumers around the world and businesss decision makers to pause and avoid making decisions and that has caused markets to become more fearful.

McQuaker believes that the European Central Bank – through ratification of an EU bail out fund and the US government – by putting party politics above economics – can do much to help stabilise markets.

But for those willing, it could be "a decent opportunity to increase exposure to riskier assets. 

Those who are thinking long term might also want to note comments from Keith Wade, chief economist & strategist at Schroders. He said it was clear that the US is not performing as well as expected and it was cutting its baseline forecast of US economic growth at 2.6% to 1.8% for 2011.

And not to put too damp a squib on things, Mindful Money's resident economist blogger Shaun Richards points out that US jobless figures were lower was because an estimated 190,000 people stopped looking for work.

More from Mindful Money:

The market take off that wasn't

Sign up for our free email newsletter here, for your chance to win an iPad 2. 

Leave a Reply

Your email address will not be published. Required fields are marked *