Wrap up – last week   

Greek debt swap deal agreed, Chinese inflation growth slows, US jobs data still positive

·         Major equity markets generally ended the week lower. Equity markets suffered their largest sell-off in over three months on Tuesday as the spotlight fell on the Greek debt swap deal for private investors – a pre-requisite for a second Greek bailout. Brazil’s economic growth slowed sharply at 2.7% for 2011 compared to 7.5% a year earlier and the benchmark Selic interest rate was cut by 75 basis points to 9.75%. Inflation in China grew at its slowest pace in almost 2 years at 3.2% year-on-year (y-o-y) in February; Beijing will now be able to increase its efforts on growingthe economy. The European Central Bank (ECB) cut its 2012 growth forecast for the Eurozone from 0.3% growth to a slight contraction and predicts inflation will remain above 2% “with upside risks prevailing.”

On Friday the Greek government managed to avert a formal default on its debt after it announced a 95.7% participation rate from private investors after collective action clauses were activated. Despite this Fitch downgraded Greece’s credit rating to “Restricted Default.” There was more cheer on the US jobs front. The string of better US data continued with non-farm payrolls up by 227,000 in February while December and January numbers were revised upwards; there was no change to the unemployment rate at 8.3%. Over the week Brent oil prices moved higher as tensions over Iran rose.

Shaping the markets – this week

FOMC meeting on Tuesday, Euro area inflation and employment data revealed

On Monday, Eurozone ministers look set to approve the €130bn bailout for Greece in a meeting in Brussels. On the next day, consumer price inflation in France is expected to move higher in February from the 0.4% month-on-month decline recorded in January because of higher fuel and clothing prices. In the US retail sales may have risen by around 2% in February because of the warmer weather and increased hiring. No change to interest rates is the outcome expected from the US Federal Open Market Committee policy meeting and the markets will be looking for any additional hints of monetary easing (QE3).

On Wednesday Euro area inflation may be confirmed at 2.7% y-o-y in February while industrial production for January is forecast to post a slight rise following a 1.1% contraction in December; the ECB’s Longer-Term Refinancing Operations has lifted business sentiment. On Thursday in line with a contraction in Euro area growth in Q4 2011, there may be another decline in Euro area employment, following the 0.1% fall the previous quarter. Friday may confirm that the US consumer price index rose again in February (+0.2% m-o-m previously), driven by higher retail energy costs. Finally there are suggestions that the University of Michigan consumer sentiment gauge this month may show a preliminary rise above the 75.3 level recorded in February.

Markets in numbers

World equities

Index

% 1W

% YTD

S&P 500 Composite

1370.87

0.1

9.0

Dow Jones Industrials

12922.02

-0.4

5.8

NASDAQ Composite

2988.34

0.4

14.7

FTSE 100

5887.49

-0.4

5.7

Euro STOXX 600

265.44

-0.7

8.5

Nikkei 225

9929.74

1.6

17.4

Hang Seng

21086.00

-2.2

14.4

Benchmark government bonds

Yield

1W /bp

YTD /bp

US Treasury – 10 year

2.04

5.2

16.2

UK Gilt – 10 year

2.08

1.8

9.8

German Bund – 10 year

1.80

-2.5

-3.2

Japanese JGB – 10 year

0.96

-1.1

-2.8

Credit indices

Yield

1W /bp

YTD /bp

IBOXX £ Non-gilts All maturities

4.71

1.7

-25.4

ITRAXX Crossover 5 Year (MID)*

572.69

10.5

-177.7

Volatility index

Index

% 1W

% YTD

CBOE PX Volatility – VIX index

17.11

-1.0

-26.9

Commodities

Index

% 1W

% YTD

Brent Oil ($/Barrel)

126.26

-0.1

15.0

Gold Bullion $/ Troy Oz

1709.99

-0.2

8.6

Currencies

vs $

vs £

 

¥

82.36

129.3

 

$

 

1.57

 

Euro

1.312

1.195

 

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

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