Weekly Global Wrap up – last week
Weekly Global Wrap up – last week
ECB leaves rates unchanged, while Germany’s six-month debt issued at a negative yield
At the start of the week, Germany issued six-month debt with a negative yield for the first time on record. This meant that investors were in effect paying Germany for the privilege of lending the government money, confirming the country’s safe-haven status. Estimates released on Wednesday, however, showed that Germany’s economic recovery went into reverse at the end of last year but the country still managed to achieve growth of 3% in 2011. This was twice the rate of the US or the rest of the Eurozone.
On Thursday, the European Central Bank (ECB) voted unanimously to leave its main interest rate unchanged at the record low of 1%. Eurozone bond markets and the single currency rallied after Italy and Spain auctioned €22bn of bonds at sharply lower yields than at recent auctions. Mario Monti, Italy’s prime minister, received approval from Angela Merkel, Chancellor of Germany, for the economic reforms which have been introduced by Italy’s new government. In the US, December retail sales were only up a disappointing 0.1% in the month, although the year-on-year (y-o-y) figure of 6.5% was more reassuring.
French President Nicolas Sarkozy sought to press ahead with a financial transactions tax, whilst S&P downgraded nine European nations (France and Austria lost their triple-A credit rating) on Friday. Discussions between Greece and its bondholders broke down, threatening a forced default.
Shaping the markets – this week
Can Germany’s ZEW economic sentiment confirm a turning point in the Eurozone?
On Monday, a contraction in Chinese foreign exchange reserves should result from the euro’s depreciation against the US dollar. Tuesday’s release of China’s 2011 fourth quarter gross domestic product (GDP) should confirm a slowdown as growth is expected to fall to 8.7% y-o-y.
In Europe, Eurostat’s flash estimate for December inflation on Tuesday is likely to be confirmed at 2.8% y-o-y, down from 3%. In Germany, the ZEW economic sentiment indicator is expected to show a further improvement, suggesting a turning point has now been reached. In the UK, the pace of decline in CPI inflation is likely to accelerate. This is due to early and deep discounting by retailers before Christmas; going forward the January 2011 VAT rise will start to fall out of the calculation. On Wednesday, the UK’s ILO unemployment rate is expected to continue its uptrend, rising from 8.3% to 8.4%. The earlier than usual Christmas/New Year sales season should confirm a boost to Friday’s retail sales numbers.
In the US, December’s industrial production should show a small gain on Wednesday, reversing almost half of November’s decline. Meanwhile, consumer prices should remain steady on Thursday as increases in food and non-energy service costs are offset by lower core commodities and energy products.
Markets in numbers
World equities
Index
% 1W
% YTD
S&P 500 Composite
1289.09
0.9
2.5
Dow Jones Industrials
12422.06
0.5
7.3
NASDAQ Composite
2710.67
1.4
2.2
FTSE 100
5636.64
-0.2
-4.5
Euro STOXX 600
249.18
0.7
-9.7
Nikkei 225
8500.02
1.3
-16.9
Hang Seng
19204.42
3.3
-16.6
Benchmark government bonds
Yield
1W /bp
YTD /bp
US Treasury – 10 year
1.86
-10.5
-145.1
UK Gilt – 10 year
1.98
-5.6
-153.1
German Bund – 10 year
1.78
-8.7
-111.0
Japanese JGB – 10 year
0.95
-3.2
-16.6
Credit indices
Yield
1W /bp
YTD /bp
IBOXX £ Non-gilts All maturities
4.89
-4.7
-39.4
ITRAXX Crossover 5 Year (MID)*
706.19
-44.6
N/A
Volatility index
Index
% 1W
% YTD
CBOE PX Volatility – VIX index
20.91
1.4
17.8
Commodities
Index
% 1W
% YTD
Brent Oil ($/Barrel)
110.56
-1.6
19.1
Gold Bullion $/ Troy Oz
1634.15
0.8
15.3
Currencies
vs $
vs £
¥
76.97
117.7
$
1.53
Euro
1.267
1.209
Source: Datastream. * Spread in basis points. Past performance is not a guide to future performance.
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