Investment Markets Overview – w/e 30 September 2011

There has been an air of relative calm this week, partially no doubt to the usual quarter’s end “window dressing” by market participates but also from reassuring tones forthcoming from both within Europe and via the now French led IMF.Germany and Denmark were amongst the latest Euro-Zone member states to endorse the proposed enlargement of the bail out fund, better known as the European Financial Stability Fund, whilst rumours suggest that the IMF could use its presumed triple A credit rating to issue bonds and recapitalise Euro land .

US economic data announced this week included August new home sales, which fell by 2.3% against the -1.7% forecast plus Durable goods orders for the same month, which eased by 0.1%.The S&P/Case Shiller 20 city home price index fell by 4.1% in July, also disappointing, but there was some relief by way of the Q211 GDP number, which was revised higher to 1.3% versus the earlier 1% stated. The Dow rose by 1.3% as the S&P 500 slid by 0.4%, whilst the Nasdaq gave up 2.7%.

Euro-zone M3 money supply was at 2.8% annualised in August against the prior reading of 2%. Elsewhere, French consumer spending rose by 0.2% in August, whilst Germany’s August retail sales slumped by 2.9%.UK house prices in September inched higher by 0.1%, according to the nationwide, whilst August consumer credit was higher than expectations at £0.5BN, versus July’s £0.2BN. The FTSE 100 ended higher by 1.2%, whilst the French CAC and the German DAX gained 6.1% and 5.9% respectively.

Out East, Japan’s industrial production rose by 0.8% in August, whilst August unemployment fell to 4.3% from July’s 4.7%. Elsewhere, New Zealand became the first Asia-Pacific nation in a decade to lose its AAA credit rating, thanks to S&P and Fitch.  The Nikkei rose by 1.6% whilst the Hang Seng fell by 0.5%.

The $US index 0.4% this week to 78.8, with other gainers including the British pound, up by 0.9%. Losers included the $Kiwi and the $OZ, which both fell by 2%. Sovereign debt yields between G-7 and the PIIGS reversed last week’s direction, as the UK gilt yield rose by 6bps to 2.43%, Japan’s JGB yield ended higher by 4bps at 1.03% whilst the German 10 year gained 14bps to 1.89%. Portugal’s 10 year yield fell by 79bps to 10.68%, whilst Irish yields sank by 113bps at 7.46%. Spanish yields declined by 7bps at 5.12% whilst Italian yields declined by 9bps to 5.53%.  The Greek 2 year yield ended the week lower by 665bps to 59.01%, whilst the 10 year fell by 80bps, ending the week at 21.78%. The US Treasury 5 and 10 year yield jumped by 13.7% and 6.4% respectively, ending the week at 0.97% and 1.92%.

Within the commodities complex, the $crude oil price fell by 1.3%, ending the week at $78.6 a barrel, whilst pressures remained within the precious metals space. The price of $Gold fell by 2.1% to $1624oz, whilst the $Silver price gave up 3.5% to $29.93oz.

Next week sees the latest on vehicle sales for Japan and for the US, with the former also due to release its Q311 Tankan survey.  The Euro-Zone announces the August PPI numbers and retail sales, whilst the UK releases September PPI plus provides a further look at Q211 GDP numbers. The ECB and the Bank of England decide on any interest rate change, whilst aside of seeing August consumer credit data for the US, perhaps the most important figures released will be the September Jobs numbers.

Most investors will be pleased to see the back of September and the third quarter of 2011, which was brutal for both stock and commodity investors. The S&P 500 US blue chip index gave up 14.3% during Q311, with many other international indices doing far worst, as investors fretted over the increased likelihood of a Greek default plus the rising odds of a global recession. Returning to that IMF rumour and EU state votes on bigger bailout funds, we would suggest that the markets are now fixated on the fundamental EU fault line, which is that monetary union will only work with fiscal union and for that there needs to be a European treasury. Don’t hold your breadth to see that anytime soon and as such look for continued market volatility.

 “Fear tends to manifest itself much more quickly than greed.” 

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