Investment Markets Overview – w/e 2 December 2011

Due to travel commitments, this “week ending” will also be truncated, reverting to normal from the 9th December 2011.

Last week may have been a tough one for stocks, but that reversed with a vengeance this week as the Federal Reserve and five other central banks agreed to lower the cost of emergency dollar funding for European banks in response to the region’s debt crisis. With stock indices jumping by anything from 7% out East; by double digits within Euro-land and by 7% in the US (pre-open on Friday as I write,) investors are certainly taking the co-ordinated move positively. But will it prove to be anything more than a few days adrenalin rush?

Left Click to view full sized Chart

Above is the most watched stock index in the World, the Dow Jones Industrial Average. Shown on it are two red arrows, highlighting prior “liquidity assistance,” the first in December 2007, when five Central Banks added $US Billions and the second in October 2008, when the American government poured more $Billions into 9 US troubled banks. The DJIA fell by 53% and 34% respectively from those intervention points to the March 2009 low.

Maybe this time it’s different? Perhaps it is just a liquidity problem after all and not a major solvency problem?

Either way, one of the aforementioned Central Bank Governors, Sir Mervyn Allister King, appears to be just a little concerned about UK bank exposure to the PIIGS.

According to Citigroup, Euro-area governments have to repay more than 1.1 trillion euros of long and short-term debt in 2012, with about 519 billion euros of Italian, French and German debt maturing in the first half alone. European banks have about $665 billion of debt coming due in the first six months, with a further $370 billion by the end of the year,

Having joined the bank in 1991, Mervyn has been on the Monetary Policy Committee since its inception in 1997, the year he was appointed Deputy Governor, before taking on the top post in 2003.

Headache he may have, but if there is one person who should have been aware of the debt bubble growing within not just his UK domain, but within the EU and Globally, it’s surely Mervyn?

Next week sees the latest trade numbers for the US and for Japan, with the former also due to release October consumer credit numbers. Provisional Q311 GDP data for the Euro-Zone will be announced, as will the latest on retail sales for both it and for the UK. The Bank of England and the ECB will convene over their respective monetary policies.

“It is as well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” — Henry Ford

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