Investment Markets Overview – w/e 26 August 2011

The US Federal Reserve was dragged,” kicking and screaming,” through the American courts, in an effort by Bloomberg to ascertain just who were the main beneficiaries of the unprecedented $US1.2 trillion of tax-payer bailouts initiated by the Fed, nearly 8 X the amount “loaned” by the US Treasury Department to the banks et all. Many months later, Bloomberg News has sifted through 40,000+ pages obtained through the freedom of Information Act requests and the results make interesting reading. It wasn’t just America’s aristocracy of finance that received assistance, almost half of the Fed’s main borrowers were European firms, including The Royal Bank of Scotland, UBS and Dexia.

US economic data announced this week included the July new home sales, which fell by 0.7%, with the June number revised to -2.9% from the earlier -1% given. Durable goods orders for July surprised on the upside, at 4% versus the 2% expected and the previous -1.3%. The second reading of Q211 GDP was trimmed to 1% against the initial 1.3% estimate plus the earlier University of Michigan consumer confidence figure for August was also revised higher. The Dow gained 4.3%, whilst the S&P 500 and the Nasdaq were higher by 4.7% and 5.9% respectively.

Euro-zone advance consumer confidence for August fell to -16.6 against July’s -11.2, whilst the ZEW economic sentiment survey for August contracted by 40 against July’s -7.The UK’s provisional Q211 GDP came in at the forecast 0.2% and 0.7% annualised, whilst July consumer confidence was better than expected, at 49, but lower than June’s 51 number. The FTSE 100 rose by 1.8%, whilst the French CAC and the German DAX rallied by 2.3% and 1.1% respectively.

Out East, the Democratic Party of Japan decided on its third prime minister in two years, as inflation (or lack of it) for August, as read by CPI, was announced at -0.6% year on year for Tokyo and 0.2% nationally. Elsewhere, July CPI in Hong Kong rose by 7.9% annualised the fastest pace since 1995. The Nikkei and the Hang Seng both rose by 0.9%.

The $US index eased by 0.3% to 73.8, with other losers including the Swiss franc, lower by 2.6% and the British pound, down by 0.6%. Gainers included the $Kiwi and the Norwegian Krone, up by 2.8% and 1.8% respectively. Sovereign debt yields, with the exception of Ireland, fell.” UK gilt yields gained 11bps to 2.5%, Japan’s JGB yield ended higher by 5bps at 1.04% and the German 10 year was higher by 5bps to 2.15%. The Portuguese 10 year yield jumped by 56bps to 10.88%, whilst Irish yields declined by 63bps to 8.63%. Spanish and Italian yields ended higher by 4bps and 14bps, at 4.99% and 5.06% respectively, with the star turn once again emanating out of Greece as the 10 year yield soared by 113bps to 17.29%. whilst the 2 year rocketed by 570bps, ending the week at 41.78%pa The US Treasury 5 and 10 year yield rose by 4.6% and 5.7%, ending the week at 0.94% and 2.19%.

Within the commodities complex, the $crude oil price gained 3.2%, ending the week at $85.6 a barrel, whilst in the precious metals space, the price of $Gold fell by 1.3% to $1831oz whilst the $Silver price ended lower by 2.8% at $41.7oz.

Next week sees more on housing data for the US, the UK and for Japan, with July consumer credit also due out for the UK. The latest unemployment figures are due for release for the US, for Japan and the Euro-Zone, with the latter also announcing the latest consumer confidence reading. August vehicle sales for Japan are also due out.

Returning to the Federal Reserve, attention was focussed on Chairman Bernanke’s annual presentation to other central bankers at Jackson Hole, Wyoming, an appropriate venue name as the more Ben “stimulates,” the deeper the hole he digs. In the event he stated that the Fed has a range of tools that could be used to provide additional monetary stimulus, without actually naming them, confirming that he is prepared to employ the tools when appropriate, without actually saying when this would be. Enlightening!

 “He loves talking about nothing. It is the only thing he knows anything about” 

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