Investment Markets Overview – w/e 18 November 2011

One week after the governments of Greece and Italy were swept aside, Spain’s socialist party suffered their worse defeat, at this weekend’s general election, since Spain’s return to democracy in 1978. In a country with 21% unemployment, but more like 40% amongst the young in certain parts of it, one shouldn’t be surprised. That said, the victorious new team, the People’s Party led by Mariano Rajoy, have been very vague on how they plan to slash Spain’s debt whilst kick starting job creation. We suspect that they are unlikely to make a difference, as that can only happen when the financial imbalances of decades past are allowed to return to equilibrium.

US economic statistics announced this week included the latest on “inflation,” as evidenced by the October PPI and CPI readings. Both came in below forecasts, at -0.3% and -0.1% respectively, whilst advance retail sales for the same month exceeded expectations at 0.5%, but lower than September’s 1.1%. October industrial production rose to 0.7% against the prior -0.1%, whilst October housing starts declined by 0.3%. The Dow lost 3% whilst the S&P 500 and the NASDAQ were lower by 3.8% and 4%.

Euro-zone advance Q311 GDP was reported as forecast, at 0.2% and 1.4% annualised. Likewise for the region’s October CPI figure, which as expected numbered 0.3% and 3% year on year.. For the UK, October CPI was also below forecasts, at 0.1% and 5% annualised, whilst 3 month unemployment to September increased to 8.3%, a 15 year high, against the 8.2% expected, with the August 8.1% figure revised higher to 8.4%. October retail sales surprised in the upside, at 0.6%, but consumer confidence for the same month came in at 36 against the 43 expected and prior reading of 45. The FTSE 100 gave up 3.3%, whilst the French CAC and the German DAX dropped by 4.8% and 4.2% respectively.

Out East, Q311Japanese housing loans eased to 2.1% annualised from Q2’s 2.4% and Tokyo condo sales contracted by 9.3% in October after September’s 16.7% rise. Elsewhere, demand for construction machinery, such as cranes and excavators are falling fast in China, usually a good litmus test on economic growth prospects. The Nikkei fell by 1.6% whilst the Hang Seng lost 3.4%.

The $US index had a good week, gaining 1.45% at 78.1, with other risers including the Yen, up by 0.4%. Losers included the $OZ and the $KIWI, off by 2.6% and 3.7%. Sovereign debt yields were again mixed this week, with the UK gilt yield easing by 4bps to 2.25%, Japan’s JGB yield also lower by 2bps at 0.94% and the German 10 year higher by 8bps to 1.96%. Meanwhile, Portugal’s 10 year yield fell by 32bps to 10.93%, whilst Irish yields rose by 11bps at 8.02%. Spanish yields jumped by 52bps at 6.35% whilst Italian yields ended higher by 20bps at 6.63%.  The Greek 2 year yield jumped once more, by 152bps this week to 100.95%, whilst the 10 year declined by  27bps, ending the week at 26.61%. US Treasury 5 and 10 year yields diverged, with the 5 year higher by 1.7%, at 0.92% and the 10 year falling by 2.1%, ending the week at 2.01% .

Within the commodities complex, the $crude oil price eased by 1.3%, ending the week at $97.9 a barrel, whilst in the precious metals space, the price of $Gold fell by 3.7% at $1724oz and the $Silver price slumped by 6.9% to $32.3oz.

Next week sees more on Q311 GDP for the US and for the UK, with the former also releasing October existing home sales numbers and durable goods orders for the same month. For Japan we get to see the latest CPI data, whilst for the Euro-Zone the latest PMI numbers for manufacturing and services are due for release.

In theory, the US “super committee,” a cross party entity born out of August’s pantomime over the American debt ceiling “debate,” are due to announce their suggestions on how to cut between $US1.2 and $1.5Trillion of government spending over the next ten years, by Wednesday 23rd November. They appear to be in disarray and are likely to request more time to make such “weighty decisions.” In reality, it’s a side show and an insult to the nations intelligence, as not only is the sum minute when measured against the $15Trillion official treasury debt, which has grown by $5Trillion, or 50%, in just three years, but any outcome will not come into law until January 2013, when coincidentally there will be a new Congress. A new Congress is not bound by any decision or law made by their predecessors.

Due to travel commitments, the next two weeks of, “week ending,” will either be truncated or missed, returning to normal service for the week ending 9th December.

 “There’s no point in asking focus groups. I go down the pub and hear about it there.”
Liam Fox,
former UK Defence Minister who allegedly presided over the largest increase in consultants fees

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