Investment Markets Overview – w/e 16 December 2011

One week post the EU summit and risk aversion remains. Whilst the ECB has made efforts to ease liquidity strains within the European banking system, now at Euro 663BN and including the recent three year extension of loans to maturity, there is still little sign of a,” big bazooka” QE programme by either the ECB or via the IMF. Meanwhile, as the agreement of the 26 European nations begins to unravel, unity is slipping, as evidenced by the growing slanging match between France and the UK, plus the growing divisions within the UK coalition government and indeed the British union itself.

US economic statistics announced this week were fairly light, but included lower than forecast November advance retail sales and zero CPI for the same month, further evidence of the Fed’s futile reflation efforts. The FOMC left monetary policy on hold at their last meeting of 2011. The Dow fell by 2.6% whilst the S&P 500 and the NASDAQ were lower by 2.8% and 3.5% respectively.

Euro-zone inflation remained muted in November, at 0.1%, whilst the December advance PMI services and manufacturing numbers were ahead of expectations. November new car registrations fell by 3.5%, whilst in Spain, home sales fell by 18% in October from a year earlier. For the UK, November CPI came in as forecast, at 0.2% and 4.8% annualised, whilst retail sales for the same month contracted by 0.4%. Unemployment for the 3 months ending in October rose to 2.64m, which at 8.3% is a 17 year high. The FTSE 100 ended lower by 2.6%, whilst the French CAC slumped by 6.3% and the German DAX fell by 4.8%.

Out East, Japanese consumer confidence fell to 38.1 in November from October’s 38.6 and the Country’s Q411 Tankan survey contracted by a more than expected. Elsewhere, OZ consumer confidence fell to a four month low according to the December reading, whilst unemployment levels in both Singapore and South Korea remained at 3 year lows. The Nikkei gave up 1.6% whilst the Hang Seng also lost 1.6%.

The $US index jumped by 2%, to 80.3, with very few other risers. Losers included the South African Rand, the $OZ and the $Canadian, all coincidentally gold producing economies, off by 3.6%, 2.3% and 2.1% respectively. It was a mixed week for Sovereign debt yields, with the UK gilt yield lower by 12bps to 2.04%, Japan’s JGB yield also lower by 3bps at 0.99% and the German 10 year lower by 30bps to 1.85%. Meanwhile, Portugal’s 10 year yield added 2bps to 12.49%, whilst Irish yields dropped by 23bps at 8.29%. Spanish yields fell by 45bps at 5.26% whilst Italian yields ended the week up by 22bps at 6.55%. The Greek 2 year yield rose by a further 41bps this week to 134.32%, whilst the 10 year eased by 45bps, ending the week at 31.84%. US Treasury 5 and 10 year yields fell by 7.5% and 9.7% respectively, ending the week at 0.82% and 1.85%. The year to date fall for 10 year yields is now a staggering 44%!

Within the commodities complex, the $crude oil price fell by 6%, ending the week at $93.8 a barrel, as OPEC increased its production for the first time in three years, to 30m barrels a day. In the precious metals space, the price of $Gold fell by 6.6% at $1601oz and the $Silver price slumped by 8% to $29.66oz.

Next week is a busy one for US economic data, including the latest on housing, durable goods orders and consumer sentiment. The latest GDP assessment will also be released for the US and for the UK, with the latter also providing November consumer confidence figures and public finances. The Euro-Zone is set to release advance consumer confidence data for December, whilst out East, November retail sales for Japan are due.

A very well known financial website lauded an FT article, by Philip Stephens of 14 December, which included the following comment, “The story of 2011 has been of the advance of democracy and the failure of democracies. In the Arab world, tyrants have fallen on the region’s political awakening. In rich nations, elected leaders have been frozen in crisis. Welcome to another of the paradoxes of the new global disorder. I do not recall the advance predictions that the good news this year would come from the Arab street; nor that the bad news would see a Greek debt crisis turn into an existential threat to half a century of European integration.”

The purpose of giving it mention isn’t so much about his view of good and bad news, many actually believe that the reversal of European integration is excellent news, but more to do with him not being aware of anyone predicting these events. Socionomics, a study of collective social mood which is pattered to the repetitive wave principal of stock indices and observes that “mood governs events,” rather than the standard presumption that, ”events govern mood,” predicted both the spreading public anger and demand for change, not just restricted to the Arab spring, and the likely pressure to be placed on both the Euro and indeed the EU itself, both entities whose growth coincided with a long term bull phase, led by the then positive collective social mood,

Charlie's interpretation from the works of Robert Prechter Jnr, founder of The Institute of Socionomics.

 “Journalism is often history on the run, usually without any predictable benefits” 

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