Weekly Global Wrap up – last week

Wrap up – last week

Greek politicians approve austerity measures as BoE extends QE programme

·         On Sunday the Greek parliament finally approved tough austerity measures totalling €3.3bn in exchange for a second bailout of €130bn to prevent the government from defaulting on its debt. The drawn out negotiations led to investors’ nerves becoming frayed, with the VIX volatility index rising over 20% in the week and US consumer sentiment (Uni. of Michigan index) falling to 72.5 in February (75.0 in January). Consequently, UK, European and US equity markets all fell, although Japan’s Nikkei 225 Index posted a 1.3% gain over the week. One notable stock riser was Apple, which climbed over 7% on news of a new iPad launch in March. With much of Europe under freeze the price of Brent oil rose 4% over the week.

Consumer prices in China rose by a stronger-than-expected 4.5% in the year to January from 4.1% in December but a slowdown is expected as last year’s spike in food inflation unwinds. Industrial pricing power has weakened, with annual producer price inflation falling to 0.7% last month, the lowest since November 2009. Exports from China fell 0.5% year-on-year (y-o-y) in January, the first drop in over two years; imports declined by over 15% resulting in a significant trade surplus. Meanwhile, the US trade deficit grew in December to $48.8bn, whilst Germany revealed record export growth in 2011, topping €1 tn. The Bank of England expanded its asset purchase programme by £50bn in a further attempt to boost the economy and improve liquidity, whilst UK producer prices rose by a stronger-than-expected 0.5% month-on-month (m-o-m) in January.

Shaping the markets – this week

Japan’s economy shrinks again, UK inflation likely down and US up, Eurozone Q4 GDP is revealed

On Monday, the Thai floods and strong yen affected Japan’s economy much more than expected; the economy contracted by 2.3% p.a. in Q4’11 (consensus -1.3%). On Tuesday UK inflation may ease further to under 4% y-o-y as the base effect from last January’s VAT rise kicks in. On Wednesday the focus will be on Euro area Q4 GDP (gross domestic product) as uncertainty in the region continues. On the same day Q4 GDP is revealed for Italy and France, with another contraction in Italy more likely following a -0.2% q-o-q reading in the previous quarter because of lower domestic demand. Spain Q4 GDP to be released on Thursday will also probably show another decline (-0.3% q-o-q in Q3’11).

In the US, Tuesday may reveal a rise in core retail sales from 0.1% to 0.7% m-o-m in January from improvements in chain-store sales, consumer confidence, unemployment and the warmer weather. On Wednesday, industrial production will likely rise by around 0.5% m-o-m given January’s strong employment and ISM (Institute for Supply Management) reports. On Friday, headline CPI inflation is expected to rise by 0.3% in January (m-o-m) following a flat December, driven by higher energy and food prices. However y-o-y CPI is expected to ease to 2.9%.

Markets in numbers

World equities

Index

% 1W

% YTD

S&P 500 Composite

1342.64

-0.2

6.8

Dow Jones Industrials

12801.23

-0.5

4.8

NASDAQ Composite

2903.88

-0.1

11.5

FTSE 100

5852.39

-0.8

5.0

Euro STOXX 600

261.25

-1.3

6.8

Nikkei 225

8947.17

1.3

5.8

Hang Seng

20783.86

0.1

12.8

Benchmark government bonds

Yield

1W /bp

YTD /bp

US Treasury – 10 year

1.93

-1.9

5.5

UK Gilt – 10 year

2.13

-4.6

15.3

German Bund – 10 year

1.94

4.8

11.2

Japanese JGB – 10 year

0.98

3.0

-0.7

Credit indices

Yield

1W /bp

YTD /bp

IBOXX £ Non-gilts All maturities

4.88

-2.0

-8.0

ITRAXX Crossover 5 Year (MID)*

587.63

16.1

-162.8

Volatility index

Index

% 1W

% YTD

CBOE PX Volatility – VIX index

20.79

21.6

-11.2

Commodities

Index

% 1W

% YTD

Brent Oil ($/Barrel)

117.49

4.1

8.5

Gold Bullion $/ Troy Oz

1722.20

-1.2

9.4

Currencies

vs $

vs £

 

¥

77.65

122.3

 

$

 

1.58

 

Euro

1.319

1.194

 

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

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