Investment Markets Overview – w/e 20 January 2012

The race to become the Republican candidate in November’s US presidential election was blown wide open this week as Newt Gingrich, the divisive former house speaker, won the South Carolina primary. Gingrich, who is tainted with domestic questions and allegations over his business relationships with the “bust” government sponsored mortgage behemoths, Fannie and Freddie, convincingly beat the frontrunner, Mitt Romney, the candidate most closely affiliated with Wall St, who stumbled to a 40% to 28% defeat after Gingrich focussed attention on Romney’s wealth, low tax payments and his history, or otherwise, of job creation whist at the head of private equity firm, Bain Capital. The “outsider,” Ron Paul, the anti-war libertarian, who wants to get rid of the Federal Reserve monetary system and wishes to drastically slim down big government, trailed at 13% of the vote, which is hardly surprising giving that the state has a heavy military presence.

US economic statistics announced this week included the December CPI numbers, which came in much as expected, at 0% on the month and at 3% year on year, whilst housing starts for the same month, eased by 4.1% to 657,000 units. December existing home sales were below consensus forecasts, at 5% versus 5.2%, but higher than November’s revised 3.3%.. The Dow gained 2.4% whilst the S&P 500 and the NASDAQ were higher by 2% and 2.8% respectively.

EU new car registration for December fell by 6.4%, whilst CPI for the Euro-Zone in December eased slightly to 0.3% on the month and to 2.7% annualised from November’s 3%. Meanwhile, German PPI fell by 0.4% in December. UK, December inflation, as per the CPI statistics, remained level with the numbers seen in November, at 0.4% on the month and 4.2% annualised. Meanwhile, unemployment over the three months to November increased slightly to 8.4%, despite average weekly earnings slipping. Retail sales for December were better than expectations despite consumer confidence for the same month remaining static. The FTSE 100 ended higher by 1.6%, whilst the French CAC gained 3.9% and the German DAX jumped by 4.3%.

Out East, December consumer confidence in Japan rose to a better than expected 38.9 against November’s 38.1, whilst convenience store sales for the same month eased to 4.1% from November’s 7.5%. Elsewhere, China’s Q411 GDP eased to 8.9% annualised from the prior 9.1%, and was the slowest expansion in 10 quarters, whilst OZ unemployment remained at 5.2% in December. The Nikkei gained 3.1% whilst the Hang Seng rose by 4.7%.

The $US index ended the week lower by 1.6%, at 80.2, with other fallers including the Japanese Yen, down by 1% . Gainers included the Euro and the Swiss franc, up by 2%, and 1.9% respectively. Sovereign debt yields were mixed, with the UK gilt yield higher by 15bps to 2.11%, Japan’s JGB yield also rose by 3bps to 0.98% and the German 10 year jumped by 17bps to 1.93%. Meanwhile, Portugal’s 10 year yield soared by 197bps to 13.88%, whilst Irish yields fell by 33bps at 7.32%. Spanish yields dipped by 4bps at 5.45% whilst Italian yields ended the week down by 39bps at 6.23%.  The Greek 2 year yield rocketed by a further 1361bps this week to 165.06%, (not a typo) whilst the 10 year eased by 16bps, ending the week at 30.86%. US Treasury 5 and 10 year yields jumped by 14% and 9.4% respectively, ending the week at 0.89% and 2.03%.

Within the commodities complex, the $crude oil price eased by 0.5%, ending the week at $98.5 a barrel, whilst In the precious metals space, the price of $Gold rose by 1.6% at $1667oz and the $Silver price jumped by 7.8% to $32oz. It was interesting to note that the gold mining index diverged once more.

Next week sees advance Q411 GDP figures for the US and for the UK, with the former also due to release December durable goods orders and new home sale numbers. It’s a light week for UK economic data, but does include the latest on government borrowing, whilst for the Euro-Zone, we should get to see the latest on consumer confidence plus the latest manufacturing and service sector performances. For Japan, it will be December trade data and CPI figures, whilst the Hang Seng and Chinese markets will be closed all week fur the Chinese New Year.

We get to hear the latest “pearls of wisdom,” by the great and the good at the World Economic Forum, held at Davos. There will also be the “2012 State of the Union address,” perhaps the final one to be given by President Barack Obama and it may be of interest to see just what he said in his 2011 address. The main vision was for America to, “out-innovate, out-educate, out-build the rest of the world and to take responsibility for our deficits.” On the latter point, $2.1 Trillion has been added to the debt ceiling in a short 5 months, which negates that part of the vision and we would suggest that the innovation and education aims are being stifled by big government and bureaucracy overload. As for the “out build,” desire, a very long tern chart of US housing starts suggests that they have fallen so hard, they are back to 1922 levels, despite the fact that three times as many people now live in the USA compared to 1922!

 “The best way to keep one’s word is not to give it.” 

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