Investment Markets Overview – w/e 4 November 2011

Phew!, what a week! Just days after EU leaders were crowing about their latest “fiction” on fixing the “Greek problem,” Greece’s Prime Minister, George Papandreou, threw a spanner in the works by announcing that the Greek people will have a referendum in respect of the agreed bailout, as, after all, it will be they who will be repaying the huge sums over years to come. EU leaders were aghast, as their understanding of democracy appears to be, “we make the decisions (albeit that in matters financial mainly stupid ones), whilst the electorate pays.” No sooner was the announcement made when Papandreou saw his slim majority in Parliament evaporate, thus cancelling the referendum plan and triggering a vote of confidence on George (late Friday night after the markets have closed.) Incidentally, the May 2010 Euro 110BN to Greece plus the initial E440BN EFSF “bailout fund,” really has achieved very little, as evidenced by the $US3.9 TR-illion fall in market cap for the 27 EU stockmarkets since the 2011 market highs to the early October lows.

US economic statistics announced this week included disappointing October ISM numbers for both services and for manufacturing, but slightly more upbeat results for the October vehicle sales. The FOMC left interest rates on hold, at 0.25%, whilst the October non-farm payroll data was slightly below forecasts, but the September figures were revised higher. The “official” US unemployment rate fell to 9% against September’s 9.1%. The Dow fell by 2% whilst the S&P 500 and the NASDAQ ended lower by 2.5% and 1.9% respectively.

Euro-zone unemployment increased to 10.2% in September from the revised 10.1% stated for August. New ECB President, Mario Draghi, surprised the markets by cutting Euro-zone interest rates by 0.25% to 1%, at his first meeting at the helm. German factory orders plunged in September, as EU demand slumped, whilst Dutch manufacturing fell for a second consecutive month in October, falling to the lowest level in 27 months on fewer orders. For the UK, September consumer credit surprised on the upside, at £0.6BN against the £0.4BN expected and August’s £0.5BN. October house prices also surprised, according to the Nationwide, rising by 0.4% against the zero predicted. Q311 advance GDP numbers exceeded consensus forecasts, at 0.5% year on year. The FTSE 100 gave up 3.1%, whilst the French CAC and the German DAX fell by 6.7% and 6% respectively.

Out East, September housing starts for Japan fell by 10.8% versus the +8.6% expected year on year, but there was better news in respect of October vehicle sales, which jumped by 28.3% annualised against the 1.7% figure for September. Elsewhere, China’s manufacturing index fell in October to its lowest level since February 2009, whilst South Korean exports increased at their slowest pace in two years. The Nikkei fell by 2.8% whilst the Hang Seng eased by 0.9%.

The $US index rallied by 2.5% this week to 76.96, with few other gainers. Losers included the Euro and the Swiss franc, off by 2.5% and 2.4% respectively. Sovereign debt yields diverged again, but this week was a reverse of last week, as the G4 yields fell whilst those of the PIIGS rose. The UK gilt yield fell by 30bps to 2.31%, Japan’s JGB yield ended lower by 5bps at 0.99% and the German 10 year sank by 35bps to 1.82%. Meanwhile, Portugal’s 10 year yield rose by 8bps to 11.55%, whilst Irish yields added 2bps at 8%. Spanish yields rose by 7bps at 5.56% whilst Italian yields ended higher by 34bps at 6.35%.  The Greek 2 year yield soared by 1770bps to 90.78%, having been over 100% mid week, whilst the 10 year surged by 317bps, ending the week at 25.52%. The US Treasury 5 and 10 year yield s were also volatile, falling by 23% and 12.5% respectively, ending the week at 0.87% and 2.03%.

Within the commodities complex, the $crude oil price added 1%, ending the week at $94.3 a barrel, whilst in the precious metals space, the price of $Gold inched higher by 0.6% to $1755oz and the $Silver price diverged, falling by 3.3% to $34.2oz.

Next week sees the latest consumer credit numbers, trade balance and consumer confidence data for the US, with trade numbers also due out for Japan, along with October bankruptcies. UK October PPI readings are due for release, as is September industrial production. The Bank of England MPC decides on any interest rate change, whilst the latest retail sales data is due out for the euro-zone. Finally, we also get a peek at Chinese inflation and retail sales.

MF Global Holdings, the broker dealer established all the way back in 1781, filed for bankruptcy this week and it’s likely to be one of the largest in American corporate history with almost $US40BN in liabilities. Jon Corzine, former Goldman Sachs CEO and a former US Senator and governor of New Jersey (yet another of these incestuous relationships between GS and the organs of the US administration,) took the helm of MF as recently as March 2010 and, according to a Bloomberg article, immediately set about increasing the firm’s risk, including investments into European Sovereign debt, which was the undoing of MF.Of further concern is that US regulators are investigating about $633m of missing client monies. Leading the Commodity Futures Trading Commission investigation is its CEO, Gary Gensler, another ex GS staffer who, according to associated press, had close ties with Corzine as they rose through the ranks at Goldman. They allegedly collaborated on Capital Hill to pass an anti-corporate fraud law.

 “Corruption is nature’s way of restoring our faith in democracy” 

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