Wrap up – last week   

The Greek bailout, Moody’s downgrades, UK CPI and Bank of Japan’s asset purchase programme

·         Markets started the week optimistically following a positive outcome in the Greek parliamentary vote. Greek politicians approved tough austerity measures to cut €3.3bn of debt, paving the way for a new €130bn bailout. Optimism was relatively short-lived, however, when credit rating agency, Moody’s, downgraded the debt of six Eurozone countries: Italy, Malta, Portugal, Spain, Slovakia and Slovenia and lowered its outlook on Austria, France and the UK.

Meanwhile, the Bank of Japan unexpectedly approved an additional ¥10tn ($128 billion) to its asset purchase programme and said it will set an inflation target of 1% to revive its economy. Growth contracted by an annualised 2.3% in the fourth quarter of 2011. Elsewhere, Spain teetered on the brink of recession after official data confirmed that the Eurozone’s fourth largest economy contracted 0.3% for the first time in two years in the fourth quarter of 2011. Consumer Price Index (CPI) inflation in the UK fell to 3.6% month-on-month in January, down from 4.2% in December. In the US, January retail sales data disappointed. The postponement of a meeting of Eurozone finance ministers weighed on sentiment. Reports suggested that Eurozone finance ministers might delay providing additional bail-out funds to Greece, and Greek and German officials faced off through the media. A number of Greek officials made accusations that the country was being forced out of the euro.

Shaping the markets – this week

European confidence indicators, German ifo business sentiment and Japan’s trade deficit

On Monday, Japan’s trade deficit is likely to widen further due to weakening external demand and strong domestic demand. On Tuesday, the UK’s public finances data is released and should give a strong indicator of whether the government remains on track to meet the 2011/2012 fiscal year target. Wednesday sees the start of the release of several Eurozone indicators. The Eurozone purchasing managers’ index for manufacturing is likely to show a further increase to 50.4 from last month’s 48.8 reading. Meanwhile, in France, consumer prices are expected to have increased significantly in January. This is due to an intermediate VAT rate at 7%, which was created in January, and an increase in energy prices. Thursday should reveal an improving German ifo business climate indicator whilst French unemployment is likely to show a significant rise on Friday.

It will be a slow week for economic news in the US. On Wednesday, existing home sales are expected to move up slightly to 4.65m, while initial jobless claims are likely to rebound modestly to 355,000. On Friday the University of Michigan’s index of consumer sentiment is expected to remain around the 72.5 level of last month. Meanwhile, new home sales are likely to rise to 315,000 in January, reversing the drop in December.

Markets in numbers

World equities

Index

% 1W

% YTD

S&P 500 Composite

1361.23

1.4

8.2

Dow Jones Industrials

12949.87

1.2

6.0

NASDAQ Composite

2951.78

1.7

13.3

FTSE 100

5905.07

0.9

6.0

Euro STOXX 600

265.93

1.8

8.7

Nikkei 225

9384.17

4.9

11.0

Hang Seng

21491.62

3.4

16.6

Benchmark government bonds

Yield

1W /bp

YTD /bp

US Treasury – 10 year

2.01

8.0

13.4

UK Gilt – 10 year

2.19

5.6

20.7

German Bund – 10 year

1.91

-2.6

8.6

Japanese JGB – 10 year

0.95

-3.0

-3.7

Credit indices

Yield

1W /bp

YTD /bp

IBOXX £ Non-gilts All maturities

4.92

4.3

-3.6

ITRAXX Crossover 5 Year (MID)*

599.43

11.8

-151.0

Volatility index

Index

% 1W

% YTD

CBOE PX Volatility – VIX index

17.78

-14.5

-24.0

Commodities

Index

% 1W

% YTD

Brent Oil ($/Barrel)

119.79

2.0

10.6

Gold Bullion $/ Troy Oz

1720.24

-0.1

9.3

Currencies

vs $

vs £

 

¥

79.36

125.5

$

1.58

Euro

1.317

1.204

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

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