Financial Week in Review, September 5-9, 2011

Another week of worldwide volatility ends with the Dow dropping more than 300 points on Friday, with all major U.S. Indexes closing in the red. In fact, nearly every stock index closed lower than it did last week. Bank of America has proposed cutting approximately 40,000 jobs nationwide as part of a corporate restructuring plan aimed at steadying the ailing bank. More details are expected to be announced by CEO Brian Moynihan on Monday.

Gold posted losses on both Tuesday and Wednesday, as U.S. stocks briefly fared better. September contract gold had fallen to $1,814.20 earlier in the week. As concerns increased about the continued volatility in European nations, gold rebounded. The price of gold stands at $1,861.20 per troy ounce. Like individual investors, central banks across the globe have been bolstering their gold reserves recently. Copper prices declined this week, to a two-week low, amid lack of growth in the manufacturing and construction sectors. Crude Oil is selling at 87.01 per barrel.

In the U.S., consumer spending continues to strengthen, exceeding quarterly forecasts. Several major retailers
all reported higher profits. The leaders, Costco and The Limited, reported sales up 11%. This has had little impact on Costco’s stock price, which is unchanged. Target and department store chains Dillard’s and Macy’s also reported small profit increases. On Thursday, Sept. 15, the U.S. Department of Commerce will release the latest Consumer Price Index.

PAPER MONEY

International Paper, the world’s largest producer of paper and forest products, has acquired rival Temple-Inland for a reported $3.7 billion. The acquisition has been in the works since the beginning of the year. International Paper had increased their offer by 5% after a failed attempt at a hostile takeover. Temple-Inland had been suffering lost profits due to the depressed housing market. Temple-Inland shares are up a whopping 25%, and International Paper shares gained 2%. International Paper will increase its market share in the lucrative corrugated cardboard packing sector by 10% thanks to the acquisition.

Carol Bartz, until last week the CEO of Yahoo, was fired by Yahoo Chairman Roy Bostock. Bartz took the helm at Yahoo in January of 2009.Yahoo stock rose 12% on news of Bartz’s departure.

India continues to weather inflation. The Reserve Bank of India is scheduled to reach a decision on an interest rate change on Friday. Economists expect them to make a 0.5% interest rate hike. Unlike India, Central banks across the rest of Asia have been holding the line steady on interest rates.

Down Under, a bill which imposes a tax on carbon emissions will reach the Australian Parliament in the coming week. This could have repercussions for mining, ranching and other major Australian industries. Julia Gillard, Prime Minister of Australia, has stated that she expects the bill to pass.

Investors are worried that “the Troika” (the IMF, EU and European Central Bank) may not continue to bailout the nation of Greece, after the Troika held an unsatisfactory meeting with the troubled nation on Friday. Rumors swirled that Greece could face a default on Monday. These worries triggered a stock sell off on Friday.

The announcement of the resignation of Jurgen Stark, the European Central Bank’s Chief Economist, led to further uncertainty in the markets. Widely known as a hawk with regard to inflation, and a chief policy-maker for the central bank, Stark had balked at the ECB’s effort to prop up the European economy by buying bonds of floundering European countries.

Concerns about Greek default also plagued the Euro, with the currency sinking to it’s weakest point since February. The Euro hit it’s lowest point in six months against the dollar and in ten years against the yen. The Euro has dropped a total of 3.8% from the previous week.

The U.S. dollar experienced a resurgence, particularly on Friday, hitting it’s highest point in six months. The dollar index (DXY) has gained 3.2% this week, and presently rests at 77.45. The Canadian dollar, or loonie, dropped over 1% this week and is nearly on par with the U.S. dollar.

Elsewhere in Europe, the EU’s European Commission said that Ireland is “well on track” for meeting its goals in reducing the country’s deficit. The gargantuan cost of bailing out the nation’s banks has been moderately lower than projected. Ireland is collecting enough tax money and cutting spending enough to meet its the needs of its large deficit, according to the EC. The commission’s findings show the deficit for this year to be 10.2% of gross domestic product, down from the expectation of 10.5%. Based on this, the 67.5 billion euro bailout may succeed. But the news is not all lucky. Irish unemployment is currently at 14% and is not expected to change this year.

How the Markets Closed on Friday, 9/9: