Wrap up – last week

Stock markets rally after EU deal on Greek debt

Thursday 27 October 2011 revealed the much anticipated announcement from European leaders that a deal with Greek debt holders had finally been reached. The agreement means that private investors will take a 50% cut in the face value of their bonds, which should reduce Greek debt levels to 120% of gross domestic product (GDP) by the end of the decade. The agreement includes a new EUR 130bn bail out of Greece by the European Union (EU) and the International Monetary Fund (IMF). Furthermore, plans to increase the value of the European Financial Stability Facility (EFSF) to EUR 1,000bn also met market expectations. However, doubts remained over the recapitalisation of the region’s banks as lenders across Europe will need to find approximately EUR 106bn of extra capital by the end of June 2012. The euro jumped 1% against the dollar, 0.3% against the yen and 0.7% against sterling.

Elsewhere, the Bank of Japan (BOJ) expanded its asset purchase programme by ¥5tn ($66bn; £41bn) in a bid to boost growth. The BOJ also left rates unchanged at between zero and 0.1%. South Korea’s economic growth slowed for the second successive quarter; GDP grew by 0.7% from July to September, down from a 0.9% expansion in the previous April-June quarter. US economic growth accelerated to 2.5% in the third quarter as consumers, businesses and the federal government boosted their spending.

Shaping the markets – this week

A busy week with meetings for the ECB, G20 and FOMC

Thursday sees the first European Central Bank (ECB) meeting under the presidency of Mario Draghi. Draghi is expected to confirm the Bank’s ongoing commitment to sovereign debt purchases under the Securities Markets Programme (SMP). The ECB meeting is immediately followed by the G20 meeting in Cannes on Thursday and Friday. A general statement of support for Europe is expected, as well as some hints of financial support from surplus economies. Wednesday’s Federal Open Market Committee (FOMC) meeting is not expected to announce any new policy actions. 

Meanwhile, US economic data releases should continue to reinforce the recent positive tone. A number of regional Purchasing Managers Index (PMI) surveys could change expectations for the national Institute for Supply Management (ISM) report due on Tuesday. Friday’s non-farm payrolls are expected to show an increase of 100,000; the unemployment rate may show a slight improvement to 9.0%.

In the Euro area, unemployment is expected to reverse most of August’s decline on Monday due to the deterioration in the Euro area economy and in business sentiment. In the UK, a temporary rebound in GDP growth on Tuesday is likely, owing to services growth in the third quarter.

Markets in numbers

World equities

Index

% 1W

% YTD

S&P 500 Composite

1285.09

3.8

2.2

Dow Jones Industrials

12231.11

3.6

5.7

NASDAQ Composite

2737.15

3.8

3.2

FTSE 100

5702.24

3.9

-3.4

Euro STOXX 600

249.00

4.2

-9.7

Nikkei 225

9050.47

4.3

-11.5

Hang Seng

20019.24

11.1

-13.1

Benchmark government bonds

Yield

1W /bp

YTD /bp

US Treasury – 10 year

2.31

10.3

-100.3

UK Gilt – 10 year

2.63

9.2

-87.9

German Bund – 10 year

2.18

13.0

-71.2

Japanese JGB – 10 year

1.04

3.6

-7.9

Credit indices

Yield

1W /bp

YTD /bp

IBOXX £ Non-gilts All maturities

5.13

-2.2

-15.3

ITRAXX Crossover 5 Year (MID)*

629.21

-110.0

N/A

Volatility index

Index

% 1W

% YTD

CBOE PX Volatility – VIX index

24.53

-21.7

38.2

Commodities

Index

% 1W

% YTD

Brent Oil ($/Barrel)

112.40

-0.6

21.1

Gold Bullion $/ Troy Oz

1743.74

6.6

23.0

Currencies

vs $

vs £

 

¥

75.76

122.3

$

1.61

Euro

1.418

1.139

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

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