Wrap up – last week   

Softer economic data causes pause in equity rally

·         Purchasing Manager Indices for manufacturing in China, Germany and France were softer than expected, which reignited fears about a global economic slowdown. Worries about slackening demand from China weighed on commodity-linked areas, causing a pullback in commodity stocks and the Australian dollar. The US, which has been recording broadly positive economic data, reported a fall in sales of single-family homes, which sent shares in house builders lower. Slightly more encouraging was the fall in initial claims for jobless benefits. The UK cut the top rate of income tax in its Budget but public sector borrowing figures for February were a setback after the deficit widened more than expected.

Bond markets had a volatile week with yields initially rising, only to fall back as the weaker economic news began to dominate. The yield on Spanish 10-year sovereign bonds, however, nudged towards 5.5% on fresh concerns about the economic outlook in the Eurozone periphery and worries that the initial lift from the largesse of the European Central Bank is beginning to fade. In commodities, metals headed lower on concerns about China but a weaker US dollar gave some support to gold and Brent Crude oil remained elevated at US$125/barrel due to strong Asian demand and the upcoming Iranian sanctions.

Shaping the markets – this week

US durable goods orders and Japanese industrial production most watched this week

This week is relatively light on important economic data but starting off the week on Monday is US pending home sales. Markets are looking for a 1% rise but falling mortgage applications could see a lower figure. On Tuesday, the Conference Board’s Consumer Confidence Index is expected to show a slight fall from February’s figure of 70.8, with high gasoline prices weighing on sentiment. On Wednesday, the US Durable Goods Orders for February are expected to rise 2.9% month-on-month (m-o-m), after falling in January, with a pick-up in transportation equipment orders one of the key contributors. On Thursday, the Q4 2011 gross domestic product growth for the US is expected to be unrevised at 3% annualised. Retail sales in Japan are expected to be flat in February after a strong rise of 4.1% m-o-m in January, the number of unemployed people in Germany is expected to fall modestly whilst monthly UK mortgage approvals are expected to be lower than the 58,700 recorded for January.

Friday is a busy day for Japanese data, with the jobless rate expected to decline slightly to 4.5% in February. Industrial production should also have expanded in February compared to a month earlier. Deflation remains a problem, however, and data for core consumer prices are expected to show a year-on-year decline of 0.9%. The flash estimate for CPI in the Eurozone for March is expected to come in below last month’s reading of 2.7% year-on-year.

Markets in numbers

World equities

Index

% 1W

% YTD

S&P 500 Composite

1397.11

-0.5

11.1

Dow Jones Industrials

13080.73

-1.2

7.1

NASDAQ Composite

3067.92

0.4

17.8

FTSE 100

5854.89

-1.9

5.1

Euro STOXX 600

265.65

-2.5

8.6

Nikkei 225

10011.47

-1.2

18.4

Hang Seng

20668.80

-3.0

12.1

Benchmark government bonds

Yield

1W /bp

YTD /bp

US Treasury – 10 year

2.24

-5.9

36.4

UK Gilt – 10 year

2.19

-16.9

21.3

German Bund – 10 year

1.87

-16.7

4.4

Japanese JGB – 10 year

1.02

-1.9

3.7

Credit indices

Yield

1W /bp

YTD /bp

IBOXX £ Non-gilts All maturities

4.80

-11.7

-16.1

ITRAXX Crossover 5 Year (MID)*

572.13

35.4

-178.3

Volatility index

Index

% 1W

% YTD

CBOE PX Volatility – VIX index

14.82

2.4

-36.7

Commodities

Index

% 1W

% YTD

Brent Oil ($/Barrel)

125.23

0.3

15.7

Gold Bullion $/ Troy Oz

1663.20

0.5

5.6

Currencies

vs $

vs £

 

¥

82.35

130.6

 

$

 

1.59

 

Euro

1.326

1.196

 

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

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