Investment Markets Overview – w/e 13 April 2012

Central Banking, a global growth industry whose gatherings of late resemble the Oscar’s ceremony, has given debt accumulation a whole new meaning. The balance sheets of the G4 Central Banks, the Federal Reserve, the Bank of England, the ECB and the Bank of Japan, have ballooned to a combined $US9Trillion versus just $3.5Trillion of five years ago. Meanwhile, the “Alpha- Dog of CBs,” Ben Bernanke, said in the last of four lectures at George Washington University. “As much as possible, central banks and other regulators should try to anticipate and defuse threats to financial stability and mitigate the effects when a crisis occurs.”

US economic statistics announced this week included “inflation data” in the guise of March CPI numbers, which came in as forecast, at 0.3% and 2.7% annualised. Import prices for the same month jumped by 1.3% against the 0.8% expected and February’s -0.1%, whilst the trade deficit for February shrank by 12% to $46BN against the -$51.8BN consensus and January’s -$52.5BN. This is the lowest deficit since October 2011 and partially explains the $US strength of late, as seen in the following chart. The major stock indices saw a second consecutive week of losses, with Apple, whose parabolic rise of late adding such a positive effect on the S&P 500 and the Nasdaq, making a new all time high on Wednesday, only to fall by 6% by the week’s end The Dow and the S&P 500 fell by 1.6% and 2% respectively, whilst the NASDAQ ended lower by 2.25%.

 

Euro-Zone economic data was light this week, but included the Sentix investor confidence reading for April, which disappointed at -14.7 against the -9.1 expected. Industrial production for February came in better than forecast, at 0.5%, but all eyes remained on Italian and Spanish 10 year bond yields, which have shot up by 20% over the past month and as seen below and now show an 80% divergence against their German brethren since the Euro-Zone debt crisis commenced in 2010. The UK trade deficit for February widened by more than forecast, at -£8.77BN, whilst the March PPI number came in at 1.9% and 5.8% annualised, both far higher than predicted. The FTSE 100 fell by 1.3%, whilst the French CAC and the German DAX ended lower by 3.9% and 2.8% respectively.

Out East, Japan’s machine orders for February jumped by 4.8% against the -0.8% consensus, whilst the money supply growth for March expanded as expected by 2.6% year on year. Meanwhile, Sony Corp announced that it will cut 10,000 jobs, about 6% of its workforce, after reporting a record loss of Y520BN. The main event, however, was the Q112 GDP reading for China, which was below the forecast 8.4%, at a three year low of 8.1%, and substantially below the prior quarter’s 9.2%, despite strong loan growth, up by 40% month on month in March. Not good for the Global economy desperate for higher growth somewhere. The Nikkei fell 0.5% whilst the Hang Seng ended higher by 0.5%.

The $US ended unchanged this week, at 79.9, with gainers including the $Singapore and the Yen, higher by 1% and 0.9%. Losers included the Mexican peso and the Brazilian real, lower by 1.5% and 0.9% respectively. Sovereign debt yields saw a volatile week, once again, with the UK gilt yield falling by 12bps to 2.04% and Japan’s JGB yield lower by 5bps to 0.94% whilst the German 10 year was unchanged at 1.73%. Meanwhile, Portugal’s 10 year yield jumped by 29bps to 12.24%, whilst Irish yields fell by 5bps at 6.7%. Spanish yields climbed by 22bps at 5.96%, whilst Italian yields ended the week higher by 7bps at 5.51%.  The New Greek 10 year yield note declined by 87bps to 20.63%. US Treasury 5 and 10 year yields fell, with the 5 year lower by 15% at 0.86% and the 10 year  by 8.1%, ending the week at 1.99%.

Within the commodities complex, the $crude oil price fell by 0.5%, ending the week at $102.8 a barrel. The precious metals saw a divergence between $Gold, higher by 1.3%, at $1658oz, and $Silver, which fell by 1.1% to $31.52oz. Gold demand by jewellers, which accounts for 47% of gold purchases in 2011, slumped by 13% in H211.

Next week sees the latest on retail sales for the US, Japan and for the UK, with the March EU 25 new car registrations adding to the retail picture. Consumer confidence readings will be released for Japan and for the Euro-Zone, whilst the UK and the E_Z announces the latest on CPI. For the US we also get to see the March housing starts and existing home sales.

Returning to the ballooning of debt, according to Bank of America Merrill Lynch, there was $11 Trillion of Sovereign debt in issue at the end of 2001. That figure now totals more than $31 Trillion.

 

On a debt to GDP basis we are interested to note that Japan and the US exceed that of the Euro area, yet the IMF, who are seeking extra funds from the G20, “to contain the euro-zone debt crisis,” continue to describe the US and Japan as “wealthy nations,” who need assistance from some of the other G20 countries, including ironically the Euro-Zone itself.

 

“On this day in 1976, Apple co-founder, Ronald Wayne, sold his 10% stake in Apple for $800. It would now be worth a tad over $58BN, with an annual dividend of $1BN.” …Oops!

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