Investment Markets Overview – w/e 2 March 2012

The ECB rolled out its second 3-year refinancing operation, labeled LTRO2 (long term refinancing operation), dolling out a further Euro 314BN of fresh cash to about 800 financial institutions, mainly banks. This follows the Euro 191Bn of LTRO1, effected in December 2011. It is hoped by the Eurocrats that the funds are used to buy government bonds (particularly the lurking problem countries of Portugal, Spain and Italy), extend loans to clients (although it appears to be only the indebted who require more) or add it to reserves. In the meantime the ECB has ballooned its balance sheet to some Euro 3Trillion and the combined Federal Reserve and ECB balance sheets now exceed $US6Trillion. Should this experiment fail the member states (read taxpayers) will pick up the tab.

US economic statistics announced during this week included better than forecast “pending” home sales for January, February consumer confidence numbers and vehicle sales. Adding to the cheer was the Q411 second reading, which was increased to 3% from the original 2.8%. Against this were  January durable goods orders, which fell at their fastest pace in 3 years at -4% against the -1.3% expected and February manufacturing, which showed a 52.4 reading against the forecast 54.5 and January’s 54.1. The Dow eased by 0.04%, rebuffed by the 13,000 round number resistance once again, whilst the S&P 500 and the NASDAQ rose by 0.3% and 0.4% respectively.

Euro-Zone inflation contracted by 0.8% in January, bringing the annualised CPI figure to 1.5% from December’s 1.6%, whilst the unemployment rate in January increased to 10.7%, higher than the forecast 10.4% and bolstered once again by Spain. Meanwhile, Ireland announced its intention to hold a referendum on the proposed EU “stability Treaty UK house prices rose by 0.6% in February, according to the Nationwide Building Society and whilst net lending secured on dwellings rose by 1.6% in January, net consumer credit for the same month was below forecasts at £0.1BN. The FTSE 100 ended lower by 0.4%, whilst the French CAC and the German DAX rose by 1% and 0.8%.

Out East, Japan’s retail trade in January jumped by 4.1% against the 1% forecast and December’s 0.3%, whilst unemployment rose to 4.6% in January from December’s 4.5% and January CPI increased marginally, at 0.1% annualised. Elsewhere, China’s manufacturing improved for a third straight month in February. The Nikkei gained 1.3% whilst the Hang Seng ended low higher by 0.7%.

The $US index reversed trend mid-week, ending the week higher by 1.3% at 79.4, with other gainers including the SA Rand and the $Canadian, higher by 1% each. Losers included the Swiss franc and the Euro, lower by 2% and 1.9%. Sovereign debt yields were mixed once again, with the UK gilt yield lower by 1bps to 2.14%, Japan’s JGB yield rose by 1bps to 0.98% whilst the German 10 year declined by 8bps to 1.8%. Meanwhile, Portugal’s 10 year yield jumped by 101bps to 13.42%, whilst Irish yields were little changed at 6.81%. Spanish yields fell by 15bps at 4.89% whilst Italian yields ended the week down by 58bps at 4.89%.  The Greek 2 year yield soared by a further 753bps to 206%, whilst the 10 year rose by 127bps at 33.3%.US Treasury 5 and 10 year yields diverged once more, with the 5 year lower by 5.4% at 0.85% whilst the 10 year rose by 0.5%, ending the week at  1.99%.

Within the commodities complex, the $crude oil price fell by 2.5%, ending the week at $106.7 a barrel, whilst in the precious metals space, the price of $Gold slipped by 3.5% to $1714oz and $Silver gave up 61.4% at $34.95oz.

Next week’s economic data due for release includes trade balances for the US and for Japan and Q411 GDP readings for Japan and for the Euro-Zone. The ECB and the Bank of England’s MPC decide on interest rate policy, whilst the latest retail sales numbers are also due out for the UK and for the Euro-Zone. Returning to the US we will also see January consumer credit data plus the much watched latest on unemployment and non farm payrolls.

Private housing in the UK, valued at £3.9 Trillion, is on course for the longest sustained slump in real prices in at least half a century, according to the Royal Institution of Chartered Surveyors. Real prices have dropped by a third since the 2007 peak, larger than Spain’s 27% fall and Italy’s 14% decline. Although the number of mortgage approvals rose to a two year high in January, at 58,728, it is still well below the 10-year average of 84,851 per month and 55% lower than the peak month of February 2004, which saw 134,000.The planned shedding of 710,000 public sector jobs by 2017 will add to the uncertainty.

 “A house is a home and should be thought of as such and nothing more.” 

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