November 15th, 2010 11:11 AM by Mel Samick
The Group of 20 meeting of leading rich and developing nations, also known as G-20, met in Seoul, South Korea last week. The world's most important economies left their summit without any meaningful agreement, finding it ever harder to cooperate and more likely to erect trade barriers to protect their own interests. There was no solution to longstanding tensions over trading and currencies. The U.S. couldn't persuade other countries to pressure China to stop manipulating its currency or limit their own trade surpluses and deficits. China was supposed to be the villain of the G-20 meeting. The U.S. and other countries have accused Beijing of keeping its currency, the Yuan, artificially low to give its exporters an unfair advantage. The currency manipulation helps Chinese exporters by making their goods less expensive around the world, leading to charges that cheap Chinese products cost America jobs at a time when U.S. unemployment is stuck at 9.6 percent. The U.S. wanted to rally other G-20 delegates to strong-arm China over the Yuan. A stronger Yuan would reduce the U.S. trade deficit with China. But the U.S. argument was undercut by accusations that the Federal Reserve was rigging the currency market itself. The Americans faced charges of doing some currency manipulation of their own by pumping $600 billion into their economy. Two weeks ago, the Fed said it would essentially print $600 billion to jolt the U.S. economy back to life. The Fed says its plan to buy Treasury bonds was designed to lower long-term interest rates, spur economic growth and create jobs. The summit was a diplomatic setback for the United States.
The stock market recorded its biggest weekly drop in three months as a feeling of malaise took over after the U.S. failed to rally world leaders to come up with plans to strengthen global growth. Stocks and commodities took a nosedive on worries that China might put the brakes on its surging economy. Any cooling of China's economy would slow down demand for raw materials, and that sent prices of oil, metals and grains tumbling. Last week the Dow was off 2.2 percent falling to 11,192, its seventh-largest weekly drop this year and its biggest weekly fall since the week ending Aug. 13. The Standard & Poor's 500 index fell 1.2 percent, while the NASDAQ composite index fell 1.5 percent. Gold fell 2.7 percent to $1,365 an ounce. Crude oil fell 3.3 percent, to $84.88 a barrel. The dollar resumed its slide against other major currencies. Bond prices fell, sending interest rates higher.
There was some good news last week. U.S. consumer sentiment rose more than expected in early November and hit its best level since June, helped by a slightly better economic outlook and early holiday sales, a survey showed last Friday. Consumer spending typically accounts for about two-thirds of U.S. economic activity. The Thomson Reuters/University of Michigan's preliminary November reading on Consumer Sentiment came in at 69.3, up from 67.7 in October. The reading on the overall index was just above the 68.2 average of the last four months but below the post-recession high of 76.0 from June. Unemployment, at 9.6 percent, is seen as one of the biggest drags on the U.S. economy, even though recent data has suggested small signs of economic improvement. However, a bright spot was that weekly jobless benefit claims, reported last Wednesday, hit a four-month low.
It's back to basics for stocks this week, as traders watch incoming economic data for signs that a pattern of better news continues. Retail Sales, Industrial Production and inflation data are all on the economic calendar, in a week where the Fed will also buy about $35 billion in Treasury's in an effort to boost the recovery. Traders are also keeping a wary eye on Europe, where Ireland's fiscal woes are expected to stay on the forefront, as European finance ministers meet. General Motors drives back into the stock market mid-week, with a more than 350 million share initial public offering, expected to price between $26 and $29 a share.
In the world of new stock offerings, everything about this week is big: The number of deals, the amount of money expected to be raised and the profiles of the companies going public. The world's most populous nation may be getting into the mix. While there are at least 10 companies lining up to sell new stock to the public next week, automaker General Motors Co. is the star of the show with its plan to sell about $10 billion in stock on Nov. 18. According to a Wall Street Journal report, SAIC Motor Corp., China's biggest automaker and GM joint-venture partner, may make a $500 million investment in the Detroit company. This week's action is likely to draw a wide range of investors into the U.S. stock market. If investors snap up stock of companies such as General Motors Co., casino operator Caesars Entertainment Corp., and management consultant Booz Allen Hamilton Inc., that could win over skittish traders who have taken refuge in the relative safety of bonds. With 10 deals expected to come to market next week, it will be the most active period for IPOs since 2007. The offerings could raise about $12.5 billion, making it the biggest week since March 2008, when nearly $18 billion was raised through IPOs.
Information provided by Amtrust Capital Markets