Investment Markets Overview – w/e 21 October 2011

As President Obama talks of narrowing the wealth gap, we were interested to note, within a Bloomberg report this week, that Silicon Valley, the Californian home of US technology entrepreneurship, has been displaced as the wealthiest American metropolitan area by, surprise, surprise, Washington! A typical Washington household earns $50,046 pa versus the valley at $83,944 but Federal employees, whose compensation averages more than $126,000 boosts the areas median income to $84,523. As further evidence of how “out of touch” and “insensitive” government officials can be, the $126,369(to be precise) is up from $122,697 in 2009, whereas the majority of others are now earning less.

Indices – 21 Oct 2011

US economic data announced this week saw manufacturing in the New York area shrinking by more than forecast this month, whilst capacity utilisation for September remained static. Inflation in September, as per the “official” CPI numbers, ticked higher to 3.9% year on year from the prior 3.8%, but at least housing starts surprised in September, jumping by 15% against the 3.3% expected, albeit that existing home sales contracted by 3% in the same month. The Dow added 1.4% whilst the S&P 500 rose by 1.1%. Meanwhile the NASDAQ diverged, falling by 1.1%.

Euro-zone government debt to GDP was put at 85.4 for the year ending 2010, against the y/e 2009 ratio of 85.1%, if you can trust the figures, whilst the EU 25 new car registrations for September fell to 0.7% against August’s 7.6%. Elsewhere, German investor confidence fell to -48.3 in October from -43.3 in September, the lowest since November 2008. UK CPI for September jumped to 5.2% annualised, its fastest pace in 3 years, as retail sales for the same month rose to 0.7% versus the 0.2% forecast and despite consumer confidence falling to 45 from the 48 seen in August. The FTSE 100 ended higher by 0.4%, whilst the French CAC fell by 1.5% and the German DAX ended level.

Out East, Hong Kong banks’ exposure to mainland China has soared over the past few years, as Chinese companies have bypassed government lending quotas. The year end 2009 exposure was $HK500m, which by July of this year had rocketed to $HK2 Trillion, mainly against Chinese banks. China’s Q311 GDP slowed to 9.1% annualised whilst elsewhere, Singapore’s exports unexpectedly fell in September as demand for electronics and petrochemicals fell. The Nikkei eased by 0.8% whilst the Hang Seng lost 2.6%.

The $US index eased by 0.3% this week to 76.4, with other losers including the South African Rand, off by 2.6%. Gainers included the Yen and the Swiss franc, higher by 1.2% and 1% respectively. Sovereign debt yields diverged between the G4 and the PIIGS this week, as the UK gilt yield declined by 8bps to 2.53%, Japan’s JGB yield ended lower by 1bps at 1.005% and the German 10 year fell by 9bps to 2.1%. Portugal’s 10 year yield rose by 62bps to 11.95%, whilst Irish yields ended higher by 9bps at 8.13%. Spanish yields rose by 23bps at 5.45% whilst Italian yields ended higher by 10bps at 5.88%. The Greek 2 year yield soared once again, by 294bps to 73.13%, and the 10 year rose by 10bps, ending the week at 23.1%. The US Treasury 5 and 10 year yield fell by 4.4% and 1.3% respectively, ending the week at 1.05% and 2.2%.

Within the commodities complex, the $crude oil price added just 0.2%, ending the week at $87.5 a barrel, whilst in the precious metals space, the price of $Gold fell by 2.2% to $1633oz and the $Silver price gave up 2.5% to $31.4oz.

Next week sees the latest GDP numbers for the US and for the UK, with the latter also reporting the October CBI business optimism reading. The US and the Euro-Zone release consumer confidence data, with the former also updating on home prices and durable goods orders. For Japan we get to see the September trade balance and September CPI.

We are unsure if it was the news of Muammar Qaddafi’s death, which may bring to an end 8 months of fighting, that turned stock markets higher, or if it was the hope that European leaders will finally solve the uncertainty over the solvency of the Euro-Zone’s Sovereign states and their respective banks, despite the fact that the “last chance” meeting of the 23rd October has now turned into a six day event straddling numerous gatherings of Heads of State, Finance Ministers, Central Bankers et al. Either way, it’s likely to be another bumpy week coming up, with no doubt more strange comments like that forthcoming from UK PM, David Cameron, who at this weeks Prime Minister’s question time said, “there is not a Nation in Europe who thinks that they can deal with their debts by adding to their debts.” Just what does he think all the hullabaloo of late is about? There is at least one sane politician in the World, who has an understanding of the difference between money and credit, and that is US Republican Ron Paul. His opinion piece within the Wall Street Journal this week is a must read.

 “A nation of sheep will get a government of wolves” 

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