Investment Markets Overview – w/e 24 February 2012

After months of “negotiations” the Europeans finally .announced a second bail out package for Greece, reportedly valued at $175BN, which has always been subject to the private bond holders of existing Greek debt taking a large “haircut” of between 50-70%, which apparently has been agreed, albeit that it has been very quite from that quarter this week. However, with the bulk of the bail out aimed at propping up the banks and financing the swap with the private bond holders, very little is left to assist the Greek economy. The crisis is postponed not eliminated.

US economic statistics announced during this holiday shortened week included January home sales, which came in at above market expectations for existing homes but under for the new variety. The February consumer confidence number surprised on the upside as did the FHFA house price index. The Dow inched higher by 1/4%, rebuffed by the 13,000 round number resistance, whilst the S&P 500 and the NASDAQ rose by 0.3% and 0.4% respectively.

Euro-Zone advance consumer confidence figures for February measured -20.2 against January’s -20.7, whilst the advance PMI indicators were lower than the consensus forecasts and lower than the January readings. Meanwhile, French CPI showed deflation of -0.4% in January against the December reading of 0.4%. UK public borrowing saw its largest surplus in 4 years in January, albeit that January is the best month of the year for tax collections. Meanwhile, the provisional Q411 GDP number showed a 0.2% contraction, in line with forecasts. The FTSE 100 ended higher by 0.5%, whilst the French CAC and the German DAX rose by 0.8% and 0.2%.

Out East, Japan’s department store sales in January contracted by 3.1% against December’s 0.3%, whilst unemployment in Hong Kong fell to 3.2% in January from December’s 3.3%. Meanwhile Australia’s Foreign Minister (and former Prime Minister) Kevin Rudd, resigned, leaving the prospect of a leadership challenge wide open. The Nikkei gained 2.8% whilst the Hang Seng ended lower by 0.4%.

The $US index fell by 1.2% to 78.3, with other losers including the Yen and the Mexican peso, lower by 2% and 1.1% respectively. Gainers included the Swiss franc and the Euro, up by 2.7% and 2.3%. Sovereign debt yields were mixed once again, with the UK gilt yield lower by 12bps to 2.07%, Japan’s JGB yield rose by 3bps to 0.97% whilst the German 10 year eased by 4bps to 1.88%. Meanwhile, Portugal’s 10 year yield jumped by 60bps to 12.41%, whilst Irish yields declined by 3bps at 6.82%. Spanish yields fell by 20bps at 5.03% whilst Italian yields ended the week down by 9bps at 5.47%.  The Greek 2 year yield soared by 1050bps to 199%, whilst the 10 year eased by 3bps at 32.07%.US Treasury 5 and 10 year yields diverged, with the 5 year higher by 3.4% at 0.89% whilst the 10 year fell by 1.6%, ending the week at  1.98%.

Within the commodities complex, the $crude oil price jumped by 6% (12% over the past fortnight), ending the week at $109.5 a barrel, whilst in the precious metals space, the price of $Gold advanced by 2.8% at $1772oz and $Silver jumped by 6.3% at $35.4oz.

Next week is a busy one for economic data, with the US releasing updates on January durable goods orders, December house prices and February consumer confidence and vehicle sales, with perhaps the most important being the updated reading on Q411 GDP. The UK also show the latest on house prices plus January consumer credit figures, whilst Japan and the Euro-Zone providing the latest on unemployment, with the latter also announcing January CPI.

The Finance Ministers and Central Bankers of the G20 flocked to Mexico this weekend, where the main issue to be discussed will be the bolstering of “funds” at the IMF. This in itself will be subject to the European “firewall,” read a combined ESFS and ESF being sufficient to meet EU debt problems. The IMF allegedly has a current war chest of $358BN and would like an additional $500-$600BN in new resources. The communiqué suggests that a decision on the IMF wish will be made in April, but with America and Britain somewhat sceptical of the plan, whilst holding about 22% of the IMF votes between them, it may not mean April of 2012.

 “For all its uncertainty, we cannot flee the future, but we can learn from the past.” 

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