Investment Markets Overview – w/e 9 September 2011

The US Congress reconvened this week from the summer recess, with the recently appointed “super-committee,” set up after the acrimonious debt ceiling debate to agree on a consensus in respect of reducing US federal debt, facing very difficult discussions. Not helping will be President Obama’s latest wheeze, a $450BN “Jobs Plan,” made up of $253BN of tax cuts and $194BN in federal spending. Incredulously, as more debt is piled on to existing, to lend to the US government for 30 years, you are “rewarded” with an annual return of 3%!

US economic data announced this holiday shortened week was light but positive, including the narrowing trade deficit in July to -$44.8BN against June’s -$53.1BN. Consumer credit beat expectations, at $11.96BN versus the expected $6BN and the revised figure for June of $11.35BN against the original $15.5BN given. Investors, however, appeared to be disappointed by Benanke and Obama’s speech, both of which were opaque to put it mildly. The Dow and the S&P 500 gave up 2.2%,and 1.7% respectively whilst the Nasdaq eased by 0.5%.

Euro-zone retail sales in July came in slightly above forecasts, at 0.2%, whilst Q211 GDP came in as forecast, at a lowly 0.2%. As expected, the ECB left interest on hold at 1.5%.The Bank of England also left rates on hold, at 0.5%, as the HBOS house price numbers for August showed a 2.6% fall, higher than expected. The FTSE 100 fell by 1.5%, whilst the French CAC and the German DAX plunged by 5.5% and 6.3% respectively.

Out East, Japan’s trade surplus fell by more than forecast in July whilst machine orders for the same month contracted by a higher than expected 8.2%. Elsewhere, China’s consumer prices and retail sales for August were as forecast, 6.2% and 17% year on year. The Nikkei and the Hang Seng fell by 2.4% and 1.8% respectively.

The $US index jumped by 3.3% to 77.2, with few other gainers. The Swiss franc led the fallers, slumping by 10.8% as the Swiss National Bank capped the franc for the first time since 1978 in an effort to protect trade. Others included the Euro, down by 3.9% and the British pound, lower by 2.1%. Sovereign debt yields between G-7 and the PIIGS diverged this week. The UK gilt yield fell by 18bps to 2.26%, Japan’s JGB yield ended lower by 6bps at 1% whilst the German 10 year sank by 24bps to a record low of 1.77%. Meanwhile the Portuguese 10 year yield jumped by 85bps to 10.87%, whilst Irish yields remained unchanged at 8.45%. Spanish and Italian yields ended higher by 3bps and 13bps, at 5.14% and 5.39% respectively, with the star turn once again emanating out of Greece as the 10 year yield soared by 194bps to 20.5%, whilst the 2 year rocketed by 852bps, ending the week at 57%pa ( that’s not a typo!) The US Treasury 5 and 10 year yield fell by 7.5% and 4%, ending the week at 0.8% and 1.92%.

Within the commodities complex, the $crude oil price inched higher by 0.4%, ending the week at $87 a barrel, whilst in the precious metals space, the price of $Gold fell by 1.4% to $1860oz, after another assault on the $1900 level, whilst the $Silver price ended lower by 4.2% at $41.4oz.

Next week sees the latest inflation data for the US, the UK and for the Euro-Zone, with August retail sales numbers also due out for the US and for the UK. July industrial production and capacity utilisation data for Japan is due for release, as are the latest trade balance and unemployment situation for the Euro-Zone.

With $5 Tr-illion wiped off global stock values since early July and the OECD this week ratcheting down their “guestimate” of G-7 growth to below 1% annualised for H211, the great and the good from those G-7 economies meet up in Marseille, France, this weekend, in yet another effort to tell the world that they, “know what they are doing,” in respect of economic policy, including how to solve Europe’s problems. We think that the following sums up Europe’s problems rather well:-

Pythagorean Theorem:                                                           24 words
Lord’s Prayer:                                                                           66 words
Archimedes’ Principle:                                                            67 words
Ten Commandments:                                                            179 words
Gettysburg address:                                                              286 words
US Declaration of Independence:                                   1,300 words
US Constitution with all 27 Amendments:                    7,818 words

EU regulations on the sale of cabbage:       26,911 words

   

“Denial isn’t just a river in Egypt.” 

 

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