Investment Markets Overview – w/e 30 March 2012

It’s been a bad week for the UK Prime Minister, David Cameron, hot on the heels of being accused of presiding over a budget that robs the poor to give to the super-rich. This week a cash-for-access scandal engulfed his leadership after the Tory former treasurer, Peter Cruddas, was led into stating that he could provide access to the PM over dinner, for the right price. This price appears to be at £250,000 and for that rich backers will get access to the PM at what’s been labeled, “Dodgy Dave’s Downing Street Diner.” According to media reports, ten multi-millionaires have handed over in excess of £23m to the Conservative party since DC became the party leader in 2005. To that can be added at least a further £35m+, as 238 additional donations of more than £100,000, including 76 at a minimum of £1/4m each have allegedly been made since that date. Whilst any improprietary has yet to be proven, it does not sit well with a government who promised transparency and to clean up politics, after the MP’s expenses scandal.

US economic statistics announced during this week included the January S&P Case Shiller Home price index, which showed the 20 city average home price lower by 3.8% year on year We are interested to note, in the following chart, that average US house prices are now 35% lower than their mid 2006 high and have now fallen below the early 2009 low, suggesting more downside yet to come. March durable goods orders came in at 2.2% versus the 3% forecast, whilst the final reading of Q411 GDP remained at 3% annualised. Finally, personal incomes grew by 0.2% in February whilst personal spending jumped by 0.8%. The Dow and the S&P 500 fell by 1% and 0.8% respectively, whilst the NASDAQ rose by 0.8% after yet another bumpy week.

Euro-Zone economic data released this week was light, but included consumer and economic confidence readings for March, both of which were below consensus forecasts. The March estimate for CPI in the region was slightly above expectations, at 2.6%, but lower than February’s 2.7%. Despite the enormous liquidity provisions of the ECB of late, credit growth to non-financial Euro-Area corporations continues to deteriorate, as can be seen from the chart below. For the UK, average house prices fell by 1% in March, according to the Nationwide, versus the +0.2% forecast and net lending on dwellings were below expectations in February. M4 money supply for the same month contracted by -3.4% annualised whilst the final Q411 GDP number was revised lower to -0.3% against the earlier -0.2%. The FTSE 100 fell by 1.5%, whilst the French CAC and the German DAX ended lower by 1.5% and 0.7% respectively.

Out East, Japan’s jobless rate fell to 4.5% from January’s 4.6%, whilst household spending for the same month jumped to 2.3% against the contraction expected. Last week we showed the HSBC flash PMI reading for China, pointing to a slowing of exports and domestic demand and this week note a close correlation between it and the Singapore PMI index, suggesting a slowing down for both of these important Asia economies. The Nikkei added 0.7% whilst the Hang Seng ended lower by 0.6%.

The $US index declined by 0.4% at 79 this week, with other losers including the $OZ and the Yen, lower by 1.2% and 0.6%. Gainers included the Swedish and Norwegian Krona, higher by 1.8% and 1.1% respectively. Sovereign debt yields saw a volatile week, with the UK gilt yield falling by 7bps to 2.2% and Japan’s JGB yield lower by 4bps to 0.98% whilst the German 10 year fell by 7bps to 1.79%. Meanwhile, Portugal’s 10 year yield sank by 98bps to 11.25%, whilst Irish yields rose by 3bps at 6.74%. Spanish yields eased by 2bps at 5.33%, whilst Italian yields ended the week higher by 7bps at 5.1%.  The New Greek 10 year yield note surged by 99bps to 20.54%. US Treasury 5 and 10 year yields fell, with the 5 year lower by 3.8% at 1.04% and the 10 year  by 0.9%, ending the week at 2.22%.

Within the commodities complex, the $crude oil price fell by 3.6%, ending the week at $102.9 a barrel. The precious metals saw a second calm week, with $Gold higher by just 0.5%, at $1668oz, whilst $Silver added 0.4% to $32.2oz. At first sight the 1.8% fall for the $Gold physical price over the month of March looks benign, however, Goldmines, whether they be the North American XAU index or the South African JSE Gold index, fell by 12%+. Whilst we are not suggesting a repeat of the 2008 magnitude of fall, it is interesting to note that the mines led the metal price lower, which is being repeated now.

Next week’s sees interest rate reviews by the ECB and the Bank of England MPC plus the latest PMI data for the UK and for the Euro-Zone. The E-Z also releases February unemployment numbers and retail sales data, whilst Japan announces February CPI and housing starts. It’s a busy week for the US, including the latest on vehicle sales, consumer credit, ISM data and unemployment.

Returning to those out of touch politicians and other establishment figures, the clueless Bank of England governor, Mervyn King, suggested this week that UK pensioners have exaggerated the effects of QE has had on their incomes.

A combination of falling asset values, caused by a debt bubble, presided over by Merv and other central Bankers, plus the desired effects of lowering interest rates and hence annuity rates, have seen pensions

taken today versus five years ago collapse by over 30%, not to mention the negative real return that savers, mainly the elderly, receive on any other deposit capital. Coincidentally, a recent report by ING bank included the chart above, which actually shows that 10 year US and UK bond yields have risen immediately after the QE announcements, albeit that in both cases yields have fallen over the past five years. We would suggest that it is more to do with a,” collective social mood change,” to one of caution and fear, following the onset of the 2007 financial crisis, that has stampeded investors into the “perceived safety of sovereign debt.” Either way, as the “governor” and most other senior bureaucrats continue to benefit from tax-payer funded gold plated pension arrangements, it belies another of “Dodgy Dave’s” maxims that, “we are all in this together.”

A recent comment by a UK resident on “fairness” relates as follows:-

I had my census paperwork returned to me as where it said do you have any dependents I put:-

Yes, MP’s, MEP’s, Government in general, Asylum Seekers, Prisoners, The entire cast of the Jeremy Kyle show,  the lazy, The people of Greece, Ireland, Portugal, and half of eastern Europe, The RBS, The Northern Rock (at the time), And Greedy Bankers in general.”

I would have put more but the space was quite limited.

Due to the Easter holiday break next weekend, “week ending” will resume on the 13th April 2012.

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