Investment Markets Overview – w/e 11 November 2011

A tricky week for the markets was reversed towards week end, as the Prime Ministers’ of Greece and Italy, George Papandreou and Silvio Berlusconi, announced their respective resignations, making way for “monetary experts,” according to various financial journalists, in the guise of “economists,” Lucas Papademos and Mario Monti, one a former vice president of the European Central Bank and Bank of Greece governor, with the other a former EU competition commissioner and EU insider, not to mention an international advisor to Goldman Sachs. Aside of the aforementioned terms, often seen as a ”contradiction in terms,” there has certainly been no shortage of economists and other financial experts, both within and outside of governments, that completely missed the warning signs leading up to the global financial crisis and appear to be unaware that their policy advice since has compounded the crisis, including the recent spread of the credit crunch from the EU peripheral to the core.

US economic statistics announced this week included a “better” than forecast consumer credit number for September, at $7.39BN versus the $5.15BN expected and August’s -$9.68BN, whilst the trade deficit for the same month also improved by more than forecast, at -$43.1BN against the -$46BN expected and the prior month’s -$44.9BN reading. The final important statistic for the week, the provisional November University of Michigan consumer confidence survey, at 64.2 against the 61.5 forecast, added to the euphoria suggested by the EU appointments mentioned above. The Dow gained 1.4% whilst the S&P 500 and the NASDAQ diverged, with the former higher by 0.9% and latter lower by 0.3%.

Euro-zone September retail sales contracted by 0.7% against the -0.1% forecast and worse than August’s 0.1%. German industrial production plunged in September, by the most since January 2009, whilst an index of Swiss consumer confidence declined to -24 in October from -17 in July. For the UK, the September trade deficit expanded to £9.8BN versus the revised August figure of -£8.6BN, whilst the Bank of England MPC left interest rates on hold, at 0.5%. The FTSE 100 added 0.3%, whilst the French CAC and the German DAX advanced by 0.8% and 1.5% respectively.

Out East, October year on year bankruptcies for Japan fell by 14.1% whilst machine orders for September contracted by 8.2%. Elsewhere, Q311 GDP for Hong Kong was announced as 0.1%, perilously close to the “official” definition of recession following the prior quarters -0.4%, whilst CPI in China fell to 5.5% annualised in October from September’s 6.1%, the largest decline since February 2009. The Nikkei fell by 2.8% whilst the Hang Seng eased by 0.9%.

The $US index was unchanged, at 76.94, with gainers including the Yen and the $Canadian, up by 1.4% and 0.8% respectively. Losers included the Swiss franc and the $KIWI, off by 1.7% and 1.1%. Sovereign debt yields were mixed this week, with the UK gilt yield easing by 2bps to 2.29%, Japan’s JGB yield also lower by 2bps at 0.97% and the German 10 year higher by 6bps to 1.89%. Meanwhile, Portugal’s 10 year yield fell by 31bps to 11.25%, whilst Irish yields eased by 9bps at 7.91%. Spanish yields jumped by 26bps at 5.82% whilst Italian yields ended higher by 8bps at 6.43%.  The Greek 2 year yield soared once more, by 865bps this week to 99.43%, whilst the 10 year rose by a more modest 136bps, ending the week at 26.88%. The US Treasury 5 and 10 year yield rose by 1.7% and 0.3% respectively, ending the week at 0.9% and 2.06%.

Within the commodities complex, the $crude oil price jumped by 5.1%, ending the week at $99.2 a barrel, whilst in the precious metals space, the price of $Gold ended higher by 1.9% at $1790oz and the $Silver price gained 1.6% to $34.7oz.

Next week sees the latest retail sales numbers for the US, the UK and for Japan, with October CPI also due out for the US, the UK and for the Euro-Zone. GDP numbers are due out for the Euro-Zone and for Japan, whilst the latest on UK unemployment and US housing will be released.

Talking of, “peripheral to the core,” it isn’t just Europe, PIIGS to France and Belgium, where the debt contagion is spreading. As the US Federal government “super committee” dithers over required cuts, Jefferson County, Alabama, declared the largest municipal bankruptcy in U.S. history this week, capping a three-year saga that turned it into one of the biggest casualties of Wall Street’s credit crisis and will revive concern that defaults will rise in the $2.9 trillion municipal bond market. Jefferson’s bankruptcy is the legacy of a sewer project dogged by political corruption. In 2009, JPMorgan agreed to a $722 million settlement with the Securities and Exchange Commission over payments its bankers allegedly made to people tied to county politicians to win business. This follows the bankruptcy filing earlier this year by Central Falls, Rhode Island’s smallest city, and the filing by Pennsylvania’s capital, Harrisburg, for court protection.

 “The accomplice to the crime of corruption is often our own indifference” 

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