Investment Markets Overview – w/e 17 Feb 2012

The week started with ratings agency, Moody’s, downgrading six European Countries, Spain, Austria, Malta, Slovakia, Slovenia and Italy, with warnings of possible downgrades for the UK and for France (Standard & Poors has already cut France.) Meanwhile the recently cancelled Euro-Zone Finance Ministers’ meeting on the Greek bailout was cancelled again, as EU politicians continued their game of brinkmanship, a game that they excel at. The private creditors of the Greek Sovereign junk have allegedly agreed on a suitable, “haircut,” subject to euro-area finance ministers’ approval, yet the ECB is clouding the issue by swapping its Greek bonds for new ones to ensure it isn’t forced to take losses in a debt restructuring.

US economic statistics announced this week included January retail sales, which came in at 0.4% versus the 0.8% forecast, but at least better than December’s 0%. Manufacturing perked up in February, as did housing starts in January. January’s CPI reading of 0.2% and 2.9% annualised were much in line with expectations .The Dow gained 1.2% whilst the S&P 500 and the NASDAQ rose by 1.4% and 1.7% respectively.

Euro-Zone advance Q411 GDP fell by 0.3%, slightly ahead of estimates, whilst the EU 25 new car registrations for January fell by 7.1%, slightly worse than the -6.4% seen for December. Meanwhile, Dutch unemployment rose to 6% in January, up from December’s 5.8%. UK CPI for January was as forecast at -0.5% and 3.6% year on year and consumer confidence for the same month exceeded the 40 figure expected, coming in at 47 against December’s 38. 3 month unemployment remained at 8.4%, a 17 year high. The FTSE 100 ended higher by 0.9%, whilst the French CAC and the German DAX rose by 2% and 2.3%.

Out East, Japan’s Q411 GDP shrank by a more than forecast 2.3% which helps explain the central bank’s surprise $120BN QE announcement. Elsewhere, China’s central bank cut the amount of cash banks must hold in reserves by 0.5% to 20.5% as the Chinese economy faces a fifth successive quarter of slowing growth. The Nikkei gained 4.9% whilst the Hang Seng ended higher by 3.4%.

The $US index rose by 0.3% to 79.3, with other gainers including the Norwegian Krone and the $Kiwi, higher by 0.5% and 0.7% respectively. Losers included the Yen, lower by 2.4%. Sovereign debt yields were mixed once again, with the UK gilt yield higher by 7bps to 2.18%, Japan’s JGB yield declined by 3bps to 0.94% whilst the German 10 year increased by 2bps to 1.92%. Meanwhile, Portugal’s 10 year yield fell by 21bps to 11.81%, whilst Irish yields rose by 2bps at 6.85%. Spanish yields fell by 4bps at 5.23% whilst Italian yields ended the week down by 3bps at 5.56%. The Greek 2 year yield soared by 1932bps to 188.5%, whilst the 10 year jumped by 79bps at 32.09%.US Treasury 5 and 10 year yields rose by 7.6% and 2% respectively, ending the week at 0.87% and 2.01%.

Within the commodities complex, the $crude oil price jumped by 5.2%, ending the week at $104.2 a barrel, rattled by escalating tensions over Iran. In the precious metals space, the price of $Gold remained level at $1725oz despite the latest WGC data which showed a 20% increase in Chinese gold purchases in 2011 to 770 tonnes, whilst $Silver ended lower by 0.9% at $33.3oz.

Next week is a holiday shortened week for the US for Presidents Day on Monday, with housing data and consumer confidence being the main items released. The UK announces provisional Q411 GDP data and the January PSBR numbers, whilst Japan is due to release January retail sales and trade figures. Finally, the euro-zone will disclose February PMI data and consumer confidence estimates.

The S & P 500 index gained 1.4% this week, making the string of weekly gains this year an impressive 6 out of 7, buoyed by non stop “positive” news, including the percentage of US corporates’ beating their earnings estimates and supporting “glowing” economic data, picked up by the optimistic rhetoric of President Obama that, “America is back.” It is rather strange, however, that aside of the January “unadjusted” retail sales figure, the “bedrock of economic growth” showing the largest sequential plunge in the history of the data, the latest survey on the attitude of US “insiders,” the CEOs, show the ratio of sellers to buyers (of their company stock) had soared in February, reaching its highest level since July 2011.
“Truth may sometimes hurt but delusion harms.”

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