Investment Markets Overview – w/e 7 October 2011

The clueless politicians and their central bank “toadies” (or should that be the other way around?) were at it again this week, implementing or endorsing policies that will compound the current global problems. We had the Bank of England announcing their very own QE2, endorsed by the UK chancellor as a welcome stimulant for economic growth, despite QE1 providing little evidence of such, in fact it damaged economic growth by destroying the spending power of the prudent, whilst indirectly stoking up the costs of basis necessities, such as fuel and food. The outgoing ECB President, Jean Claude Trichet was no better, confirming that the ECB would continue to offer unlimited credit to banks, as the Franco-Belgium bank, Dexia SA, is desperately in need of a second bailout, just three months after it received a clean bill of health in the so called “EU stress tests” and nearly 3 years since receiving a $US58.5BN loan from US Federal Reserve. Of more importance is that it moves the banking crisis from the continent’s periphery to its heartland

US economic data announced this week included September vehicle sales, which surprised on the upside, at 13.04m versus the 12.1m for August. Factory orders for August contracted slightly but there was better news on the jobs front, as September non-farm payrolls jumped to 103,000 against the 60K forecast and August’s revised 57K number. It was insufficient, however, to budge the “official” unemployment rate, which remained at 9.1%. The Dow rose by 1.74% with the S&P 500 and the Nasdaq higher by 2.1% and 2.7% respectively.

Euro-zone August PPI contracted by 0.1% whilst retail sales for the same month fell by 0.3% and by -1% annualised. Elsewhere, Swiss retail sales fell by 1.9% year on year in August whilst the number of registered people on unemployment benefits in Spain climbed by 95,817 in September to 4.22m. As expected the ECB left rates on hold, at 1.5%. UK interest rates were also left on hold, at 0.5%, albeit that the Bank of England sanctioned a further £75BN of QE (better known as tax-payer commitment,) as Q211 GDP was revised lower to 0.1% against the earlier reading of 0.2%, despite government spending increasing by 1.1% against the prior 0.8% (despite all the talk of reigning back.) The FTSE 100 ended higher by 3.4%, whilst the French CAC and the German DAX gained 3.8% and 3.2% respectively.

Out East, Japan’s latest quarterly Tankan report showed that the largest manufacturers’ remains more subdued than before the March earthquake whilst September vehicle sales at least grew by 1.7% against the 25.5% contraction evident in August. Elsewhere, inflation picked up in Taiwan and in the Philippines, at 1.35% and 4.8% annualised in September.  The Nikkei fell by 1.1% whilst the Hang Seng added 0.7%.

The $US index added 0.2% this week to 78.75, with other gainers including the Brazilian real, up by 6.1% and the $Kiwi, higher by 1.1%. Losers included the Swissie and the British pound, which fell by 2.1% and 0.1% respectively. Sovereign debt yields showed a mixed bag, as the UK gilt yield rose by 4bps to 2.47%, Japan’s JGB yield ended lower by 4bps at 0.98% and the German 10 year gained 12bps to 1.885%. Portugal’s 10 year yield rose by 27bps to 10.94%, whilst Irish yields increased by 9bps at 7.55%. Spanish yields declined by 15bps at 4.97% whilst Italian yields declined by 2bps to 5.51%.  The Greek 2 year yield ended the week up by 450bps to 63.5%, whilst the 10 year rose by 75bps, ending the week at 22.53%. The US Treasury 5 and 10 year yield jumped by 11.2% and 7.5% respectively, ending the week at 1.07% and 2.07%.

Within the commodities complex, the $crude oil price rallied by 4.9%, ending the week at $82.8 a barrel, whilst within the precious metals space, the price of $Gold rose by 1% to $1642oz, whilst the $Silver price jumped by 4.2% to $31.23oz.

Next week sees the latest trade data for Japan, the UK, the Euro-Zone and for the US, with the latest on consumer confidence also due out for Japan and for the US.  The Euro-Zone and the UK announces August industrial production numbers with the latter also providing 3 month unemployment figures to August. Advance US retail sales for September will also be released

Returning to the theme of clueless politicians, President Obama was thumping on about his new Jobs Bill, which seeks to increase taxes on the rich, many of whom have been the wealth creators, enabling him to give to the states, the wealth consumers, to allegedly, “keep and create jobs.” The country sure needs more jobs, but it needs more Steve Jobs, the co-founder of Apple who sadly lost his battle with cancer this week. Wealth and job creators extraordinaire, like SJ, will solve unemployment, IF you remove government and regulatory impediments, rather than government extorting a further half a trillion dollars from working people, thus destroying jobs.

 “The only way government has succeeded in furthering enterprise is by getting out of the way of its development.” 

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