Investment Markets Overview – w/e 14 October 2011

G20 finance ministers met up this week, as a lead in to the G20 leaders conference, with all determined to see an end to “Europe’s financial problems”. The IMF head, Christine Lagarde told member countries last month that her current $US390BN war chest may not suffice to meet all loan requests likely to appear from the likes of Spain and Italy (to mention but a couple of suspects.) The perception is that emerging markets, in particular China, may feel pressure to make some financial gesture to help the West. IF they do, it is likely only IF a WTO ruling on China’s entry into it in 2001, predominantly enforced by the US and Europe, that China would not be recognised as a “market economy” until 2015, is reversed.

US economic data announced this week included the August trade balance, which equalled July’s at -$45.6BN, slightly better than forecasts. The provisional University of Michigan consumer confidence survey for October was below the 60.2 consensus expectation, at 57.5 versus the prior reading of 59.4, whereas advance retail sales for September surprised on the upside, at 1.1% against August’s 0.3%, albeit that if you strip out auto and gasoline sales, the figure was level.  The Dow jumped by 4.9% whilst the S&P 500 and the Nasdaq soared by 6% and 7.6% respectively, on muted volumes which suggests that the “big money” is not buying the advance.

Euro-zone CPI for September came in as expected, at 0.8% and 3% year on year, whilst the region’s trade balance swung into deficit in August, at –Euro3.4BN, despite Germany’s improved exports. Elsewhere, Greece’s central government deficit widened to 19.2BN Euros over the first nine months of 2011 against 16.7BN Euros a year earlier. The UK trade deficit for August was slightly better than analysts forecast, at -£7.7BN against July’s -£8.2BN, whereas manufacturing for the same month was slightly worse, at -0.3% and 1.5% annualised. The 3 month unemployment rate to August rose to a 15 year high, at 8.1%, versus the prior period’s 7.9% and weekly earnings appear to be slipping, like their US counterpart. The FTSE 100 ended higher by 3.1%, whilst the French CAC and the German DAX gained 4% and 5.1% respectively.

Out East, Japanese consumer confidence improved in September, as did condo sales in Tokyo for the same month. Elsewhere, China’s trade surplus fell in September to $US14.5BN against August’s $17.8BN, mainly due to lower exports whilst retail sales have remained robust, whilst South Korea’s jobless rate climbed to 3.2% in September from 3.1% in August. The Nikkei rose by 2.7% whilst the Hang Seng added 4.5%.

The $US index fell by 2.7% this week to 76.6, with other losers including the Yen, off by 0.6%. Gainers included the $OZ and KIWI, which jumped by 5.9% and 4.6% respectively. Sovereign debt yields jumped across the board this week, as the UK gilt yield rose by 14bps to 2.61%, Japan’s JGB yield ended higher by 3bps at 1.01% and the German 10 year gained 20bps to 2.2%. Portugal’s 10 year yield rose by 38bps to 11.32%, whilst Irish yields jumped by 49bps at 8.04%. Spanish yields rose by 26bps at 5.23% whilst Italian yields ended higher by 27bps at 5.78%.  The Greek 2 year yield soared by 667bps to 70.19%, whilst the 10 year rose by 46bps, ending the week at 23%. The US Treasury 5 and 10 year yield jumped by 2.9% and 7.9% respectively, ending the week at 1.1% and 2.23%.

Within the commodities complex, the $crude oil price rallied by 5.4%, ending the week at $87.3 a barrel, whilst, within the precious metals space, the price of $Gold rose by 2.3% to $1681oz, whilst the $Silver price added 3% to $32.2oz.

Next week sees the latest inflation data for the US and for the UK, with the former also announcing more on housing, by way of September housing starts and existing home sales. Euro-Zone “official” Debt/GDP numbers for 2010 will be released, as will September new car registrations for the EU25.  September UK retail sales and consumer confidence results will be announced, whilst we also get to see the latest retail sales for both Japan and for China.

It was a year ago this week since the start of nationwide US investigations into “foreclosure practices”.Since then, state attorneys general from 50 states have been mired in dispute with the banks, each other and not to forget, a rafter of government agencies, such as the Justice and Housing and the Urban Development departments. The “results so far”, include bank stock prices substantially lower over the uncertainty, with the Bank of America lower by 51%, an increased cost to both the banks and to the US tax-payer, as a growing number of those overstretched borrowers remain in their houses rent free, plus a massive increase in inventory overhang for the property market, now at some 9m homes or 18 months supply.

 “There’s the difference between governments and individuals. Governments don’t care,    individuals do.” 

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