Around the World in 3 Seconds

Global markets rose again this week. If you could summarize the year to date improvement in a sentence it would be: There’s a lot of liquidity.

Um… what is liquidity? Read here.

Despite economic data that is improving in the U.S. (lower unemployment, stronger consumer sentiment readings)—the world’s central banks have been on a mission to keep as much money in the system as possible.

In the short term—that generally is good for stock prices (the stock market). Over the long term it can create asset bubbles (where too much money flows into one thing) or inflation.

Let’s Recap What Happened Around the World

The U.S.

Markets: The S&P 500 was up 1.4% on the week. It’s up 8.2% year to date.

The Skinny: New claims for unemployment this past week hit the lowest level in 4 years. S&P 500 Dividends are increasing (cash from a company’s earnings returned to shareholders)—indicating corporations are healthy. But there are some areas of concern, like bonds: Warren Buffett Sounds an Alarm.

Europe

Markets: The Euro Stoxx 50 was up 1.6% on the week.  It’s up 8.8% year to date.

The Skinny: Greek bailout is looking more likely—spurring excitement in the region. Even though practically everyone knows Greece cannot make it on their own- ever. So, this is going to be a long process of bailouts.  German confidence rose to the best levels since last April.

China

Markets: The Shanghai Index was close to unchanged on the week. It’s up 7.1% year to date (as of close Friday).

The Skinny: China just decreased their required reserve ratio (RRR) this weekend. What is that? For every dollar a Chinese Bank lends out they need to hold a portion of that back as set by the RRR. By lowering the RRR, China is allowing banks to give more money to borrowers. This is designed to spur growth.

They have done this because the housing market, exports and inflation have all slowed. And the stock market has fallen significantly in the past 2 years as a result—about 30%.

Gold

Markets: Gold, as measured by an ETF called GLD was up 0.1% on the week. It is up  10.1% year to date.

The Skinny: Oh, Gold. It’s be best performing asset class this year. It reacts to continued measures to increase liquidity (which amount to increasing paper money). And there appears to be some signs inflation could build—as crude oil rises to the highest levels we have seen in 18 months.

For more read: Gold: 101

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