Article by Henderson Global Investors — Weekly Wrap

Wrap up – last week

Equities stumble as central bank inaction and action unnerves markets

Investors were left disappointed as both the European Central Bank (ECB) and Bank of England left interest rates on hold and failed to pursue more quantitative easing, although both used more dovish language. Central bank action centred on currency intervention as the Swiss National Bank pledged to buy unlimited amounts of foreign currency in an effort to put a ceiling on the value of the Swiss franc, driving the Swiss currency down almost 8% against the euro on the announcement. On Friday, Jürgen Stark, a German member of the ECB’s executive board resigned, highlighting the split within the bank over the rescue proposals for troubled sovereign borrowers. Across the Atlantic, President Obama’s $450 billion jobs package received only a lukewarm reception. Equities generally closed the week lower whilst core government bond yields declined in response to the more risk-averse environment. Gold slipped over the week and Brent Crude oil, which had climbed as high as US$116.50 a barrel mid-week on supply disruptions, closed at US$112.55 a barrel as global economic growth fears gained the upper hand.

Shaping the markets – this week

Banking sector proposals and inflation data the key points of interest for the week ahead

Monday sees the long-awaited report from the UK’s Independent Commission on Banking, which is expected to propose ring-fencing of deposit operations from other banking activities. In terms of data releases, inflation dominates the week, with the UK announcing its consumer price index (CPI) inflation on Tuesday. The consensus expects higher petrol prices to send the annual rate above last month’s figure of 4.4%. On Thursday the annual headline CPI figure for August for the eurozone is expected to come in at 2.5%; the same day also sees the US release, which is expected to reach 3.7%.

Thursday is a busy day in the US for data releases with industrial production expected to advance marginally whilst the Philadelphia Fed’s Manufacturing Index is expected to recover to -16, undoing the sharp drop to -30.7 that occurred in August. Elsewhere, on Wednesday in Japan the latest industrial production figures (reflecting the month of July) are released, which should give an indication of the recovery from the earthquake, whilst the same data for the eurozone is expected to show a 1.4% month-on-month rise.

Markets in numbers

World equities

Index

% 1W

% YTD

S&P 500 Composite

1154.23

-1.7

-8.2

Dow Jones Industrials

10992.13

-2.2

-5.1

NASDAQ Composite

2467.99

-0.5

-7.0

FTSE 100

5214.65

-1.5

-11.6

Euro STOXX 600

224.59

-3.7

-18.6

Nikkei 225

8737.66

-2.4

-14.6

Hang Seng

19866.63

-1.7

-13.8

Benchmark government bonds

Yield

1W /bp

YTD /bp

US Treasury – 10 year

1.91

-8.3

-139.4

UK Gilt – 10 year

2.47

-18.0

-104.1

German Bund – 10 year

1.76

-25.7

-112.7

Japanese JGB – 10 year

1.01

-2.6

-11.2

Credit indices

Yield

1W /bp

YTD /bp

IBOXX £ Non-gilts All maturities

5.01

-3.5

-27.5

ITRAXX Crossover 5 Year (MID)*

731.29

55.5

N/A

Volatility index

Index

% 1W

% YTD

CBOE PX Volatility – VIX index

38.52

13.6

117.0

Commodities

Index

% 1W

% YTD

Brent Oil ($/Barrel)

112.55

-1.1

21.3

Gold Bullion $/ Troy Oz

1856.68

-1.0

31.0

Currencies

vs $

vs £

 

¥

77.73

123.6

$

1.59

Euro

1.371

1.163

Source: Datastream. * Spread in basis points. Past performance is not a guide to future performance.

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