Welcome to CrushTheStreet.com’s Weekly Market Wrap Up!
Our top story for the week is the persistent decline in the Euro currency, which has now fallen to 12 year lows against the U.S. dollar. Subsequently, major European stock markets were lifted as the weaker currency raised profitability expectations for exporters. On the other hand, Wall Street suffered from choppy trading as heightened fears of a potential interest rate hike weighed heavily on investor sentiment. With all indications suggesting that the Federal Reserve will indeed raise rates, will the Euro continue its free fall? And what will the implications be for the long-term?
The immediate beneficiary in this rapid monetary devaluation are European blue chip companies. Volkswagen, one of Germany’s most recognizable brands, shot up above 237 euros per share for its public equities, hitting a six-year high. Not to be outdone, BMW, the luxury auto manufacturer, made the most out of the currency crisis, moving to an all-time record valuation of 119 euros per share. Central to their good fortune is the European Central Bank’s accommodative policy, which embarked on a multi-billion euro bond buy-back program and sent yields on debt notes diving.
Such measures allow cheaper financing on loan agreements and in theory, increases what is known as money velocity. Companies are able to invest in research and development at lower recurring costs, leading to a ramp up in hiring. The currency swing and its resulting boon for auto exporters also helped offset a 38-percent decline in car sales in Russia, according to the Wall Street Journal. Russian buyers for European goods accounts for a significant portion of revenue for the Eurozone region, but ongoing sanctions have stymied business relations, with Russia taking the brunt of the damage.
However, the dark side of deliberate monetary devaluation is that international trading partners which already have weaker currencies find it intractably difficult to maintain the partnership. The unprecedented collapse of the Russian ruble ironically caused a surge in foreign automobile sales in the country as concerned citizens secured their purchasing power by acquiring hard assets. But now that the regular folks have all but exhausted their savings, Russian sales of low to mid-tier cars have evaporated.
Even more troubling, according to the Association of European Business Automobile Manufacturer’s Committee, is that the industry and the market sentiment has yet to hit a bottom. That means that the worst of the Russian sales crisis is yet to come and it seems highly unlikely that the benefits associated with quantitative easing programs will resolve long standing economic issues.
In financial news, the U.S. equities sector started the week on a bad note as investment managers moved to protect their positions against likely volatility. Thursday’s market action, however, brought the Dow Jones up to 17,895 points, while the benchmark S&P 500 ended the session just under 2,066, up one-and-a-quarter percent . The precious metals complex continued its slide as the specter of Fed tightening squeezed gold prices down to 1,155 dollars while silver gained over a percent, closing at 15.55. Palladium had an uncharacteristically rough week due to declining Russian car sales, with the industrial metal settling at 791 on the ask. Finally, in digital currency news, bitcoin continues its impressive bull run, trading in a tight range just under 300 dollars.
And that will do it for this edition. Thanks for watching and we’ll see you next week!