Our Economic Analysis - Week 1 By Rokas Peciulaitis

The first week of the new decade was relatively calm due to lack of news and events in the markets. Despite that fact, the clouds of Euro debt crisis where still hanging over the markets and since the investors took that into consideration this had a negative effect on the most of indexes performance this week. Through the last 5 trading days, we had relatively small gains in some of the main indexes and sectors, thus the volumes were relatively smaller (VIX index which shows the volatility of S&P 500 was down 4.67% through the week).  Investors were conscious about the upcoming news from FED, IMF and EU officials about the situation in the Euro zone countries, after the tremendous failure of Ireland. There is still a precautionary mood in the markets as there will be stress tests relating to the Portuguese, Italy and Spain dept conditions, thus the investors are restrained while waiting for some news and clear trend in the market. However, in the foreign exchange market the dollar was rallying for the same reasons and gained 2,31% (UUP Index); Controversially, Euro significantly depreciated against most of the currencies due to lack of credibility in EU monetary and fiscal problems. (EUR/USD -3.81%).

Following the abrupt rally in the commodities market in the last months of 2010, the first weeks of 2011 saw a reversal and most of the commodities entered the red zone leading to some negative performances as there were some speculative concerns about China's future consumption rates, US dollar appreciation  and also, some big individual investors and hedge funds were taking profits and changing holding in their portfolios. For these reasons gold and all other commodities with the exception of Crude Oil have so far experienced a negative trend  (GSG -3.54% and GLD -3.81%).

In corporate news, there was lots of discussion about new Goldman Sachs and Facebook deal, where Goldman Sachs has reached out to its wealthy private clients, offering them a chance to invest in Facebook, the hot social networking giant that is considering a possible public offering in 2012. Facebook raised 500Millions through Goldman Sachs and Russian investor valuing company at 50Billion. Within this investment Goldman Sachs will give an opportunity for their high-wealth individuals to invest in Facebook before it goes public, however, the minimum required investment is 2million and there are some selling restrictions. This has been cited as an example of how the investment banking giant is creating structured products that circumvent restrictions imposed by financial regulators.

In international economic news, The World Bank issued its first Yuan-denominated bond, raising $76 million (500 million Yuan) promoting the use of the Chinese currency in international markets. The World Bank's 500 million Yuan bond issue arrived when China's shareholding in the World Bank is about to increase, potentially making China the third-largest stakeholder in the lender after the United States and Japan. On the other side of the ocean there were some serious movements in the currency markets, Chile‘s central bank said it will buy $12 billion in the foreign-exchange market, joining other Latin American nations in a bid to offset the dollar’s decline. This resulted in bearish mood among investors and uncertainty, resulting in a peso decline of 4.6%, one of the steepest drops since June 198 when Augusto Pinochet’s  Era was coming to an end.

At this point of time most of the international markets in the world are at their recent peaks, so investors will be conscious about potential correction. This may be inevitable due to the Euro-debt problems and also the FED's intervention with its $600 Billion Quantitative Easing 2 program, an attempt to stimulate the economy and lower record-high levels of unemployment. As a final note, in the coming week currency wars and threats to commodities can be expected to continue to play the market-driving role they have played recently and should be monitored closely.