Investment Markets Overview – w/e 23 March 2012

In a further blow to the credibility of the US financial markets, its lead regulator, the SEC, has sided with Goldman Sachs (yes, that firm again), stating that GS did not have to “review their executive compensation packages,” as has been requested by a group of religious institutions who hold Goldman shares, effectively endorsing the real “God’s work,” as done by GS, according to its boss, Lloyd Blankfein. Meanwhile, Bloomberg News has allegedly obtained a copy of a memo drafted by the former MF Global CEO, (and former GS CEO, Democrat Senator and Governor of New Jersey, ) Jon Corzine, that he gave direct instructions to transfer $200m from a customer fund account to meet an overdraft in one of MF’s brokerage accounts with JP Morgan Chase Bank , just days before MF Global filed for bankruptcy, leaving a $1.6BN shortfall within its “segregated customer accounts,” which regulators, the bankruptcy trustees, Congress, not to mention the beleaguered former clients’ have been seeking answers to over the four long months since MF went bust

US economic statistics announced during this week were mostly housing related and the data, like the economic data in general of late, was mixed. Whilst building permits for February came in higher than forecast, housing starts were below expectations, actually contracting by -1.1%. Existing home sales for the same month fell by -0.9% versus the+ 0.9% forecast, whilst new home sales fell by -1.6%, a second consecutive month of falls, albeit that at least the median sales price achieved was 6.2% higher year on year. The chart below shows that the only decent spike of revival to home ownership came from the tax break offered during the initial stages of the financial crisis. The Dow and the S&P 500 fell by 1.2% and 0.5% respectively, whilst the NASDAQ rose by 0.4% after a bumpy week.

Euro-Zone economic data was light this week but included March advance readings for PMI manufacturing and services, which both came in below consensus forecasts. For the UK, aside of the February CPI numbers, which at 0.6% and 3.4% annualised were higher than expected and disappointing retail sales and consumer confidence data for the same month, the main event was the March budget., which fiscally was broadly neutral, albeit that the forecast GDP growth for the next year or so looks ambitious. Government spending must continue to fall and as can be seen from the chart below, it’s likely to be within the area of welfare. The FTSE 100 fell by 1.9%, whilst the French CAC and the German DAX ended lower by 3.3% by 2.3% respectively.

Out East, Japan’s February department store sales fell by -1.8% year on year but there was an unexpected trade surplus for the same month. Elsewhere, there was further evidence of weakness for China’s manufacturing sector, as shown within the HSBC flash PMI reading, which has a higher weighting of small and medium size businesses compared with the official data, but points to a slowing of exports and domestic demand nether the less. The Nikkei fell by 1.1% whilst the Hang Seng ended lower by 3%.

The $US index declined by 0.6% at 79.35 this week, with other losers including the $OZ and the $Kiwi, lower by 1.2% and 0.8%. Gainers included the Yen and the Swiss franc, higher by 1.3% and 0.8% respectively. Sovereign debt yields were mixed but with a lower bias this week, with the UK gilt yield falling by 17bps to 2.27% and Japan’s JGB yield easing by 2bps to 1.02% whilst the German 10 year fell by 19bps to 1.86%. Meanwhile, Portugal’s 10 year yield sank by 104bps to 12.23%, whilst Irish yields slipped by 6bps at 6.71%. Spanish yields rose by 17bps at 5.35%, an eight week high, whilst Italian yields ended the week higher by 18bps at 5.03%.  The New Greek 10 year yield note surged by 177bps to 19.55%. US Treasury 5 and 10 year yields fell, with the 5 year lower by 2.9% at 1.08% and the 10 year  by 2.65%, ending the week at 2.24%.

Within the commodities complex, the $crude oil price eased by 0.3% or 7 cents, ending the week at $106.7 a barrel and judging by US domestic demand for gasoline, it may be at a turning point. The precious metals had a quieter week, with $Gold ranging within a 1% arc before ending the week unchanged, at $1660oz, whilst $Silver gave up 1.7% to $32.1oz.

Next week’s economic data due for release includes the latest on consumer confidence for the US, the UK and for the Euro-Zone and a final reading on Q411 GDP for the US and for the UK. The US also releases the latest on house prices, durable goods orders and personal incomes against expenditures, whilst the UK announces February net consumer credit figures. For Japan the February retail sales, unemployment numbers plus the official CPI reading for the same month are due.

Returning to the financial markets we observe more conflicting views of late. The new boy at the ECB, ex Goldman Sachs employee, Mario Draghi, said in an interview that, “the worst of the sovereign debt crisis is over”, whilst James Bullard, president of the Federal Reserve Bank of St Louis, suggested in a speech this week that the “US economy may expand by 3% this year”.  Meanwhile, Investors Intelligence notes that corporate insiders are now selling shares at levels associated with “near panic action.” The firm notes that since corporate insiders typically receive stock as part of their compensation, it is normal for insiders to sell about 2 shares on the open market for every share they purchase. Recently, however, insider sales have been running at a pace of more than 8-to-1. The dollar amounts are even more lopsided, as another firm, Trim Tabs, reports that the recent pace of $13 of insider sales for every $1 of purchases are associated almost exclusively with intermediate market peaks.


 “Corruption is authority plus monopoly minus transparency.” 

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