Wrap up – last week   

Eurozone firewall boosted to €700billion, UK Q4 GDP revised down, German business confidence up

The week produced a mixed bag of economic data. In another sign of returning confidence, the German ifo business climate index surprisingly rose to 109.8 in March, the forecast was for it to remain unchanged at the initial 109.6 reading. Mid-week, the US, UK and Japan contemplated releasing emergency oil reserves causing crude oil prices to tumble. Saudi Arabia, the largest oil producer announced its support for lower oil prices to bolster the global economic recovery. In the UK, Q4 2011 gross domestic product (GDP) was revised down to -0.3% from -0.2% previously, while in France GDP for the same period was up 0.2%, bringing in 2011 growth to 1.7%. In the US Q4 2011 economic growth was left unrevised at 3% p.a, suggesting the economy is still resilient; the US has now had ten quarters of consecutive GDP growth. In Japan, factory output unexpectedly fell 1.2% in February following a 1.9% gain previously, giving policymakers more reasons to carry on with stimulus efforts.

On Friday Eurozone finance ministers agreed to temporarily boost the region’s bailout funds to €700b, with Germany opposing a larger limit of €940billion. Eurozone consumer prices slowed slightly less than estimated to 2.6% year-on-year in March, due to rising oil prices. Spain is to implement €27billion of budget cuts this year, in a tough austerity drive to improve its public finances. Elsewhere UK consumer confidence fell to -31 in March, according to a GfK NOP survey; a modest improvement had been expected. German retail sales fell for a second consecutive month in February, due to rising energy prices. However unemployment in March fell by 18,000 more than the 10,000 forecast while the adjusted jobless rate reached 6.7%, the lowest in twenty years. At the end of the week, China’s official manufacturing purchasing managers index (PMI) rose to its highest level in a year, to 53.1 in March. However seasonality factors may have had a positive effect, reflected in HSBC’s PMI, which showed a fifth consecutive monthly decline.

Shaping the markets – this week

PMI data releases, ECB and BoE meetings, US non-farm payrolls

In a busy week for PMI data releases, UK manufacturing PMI for March may have weakened from February’s 51.2 reading; backlogs from previous months are unlikely to have reduced further and new orders fell in February. UK services PMI may also decline slightly although it is expected to remain close to the February level. Eurozone manufacturing PMI is expected to be confirmed at 47.7 for March. On Wednesday German factory orders for February point to a strong rebound from the -2.7 reading in January; the recent ifo survey showed that most firms received more orders after January. Thursday will see the release of German industrial production data for February, there is likely to be further growth after January’s strong rise of 1.4% (month-on-month) following weakness in Q4 2011.

The European Central Bank is expected to keep its policy rate on hold until the full effects of the Longer-Term Refinancing Operations have fed through, while Thursday’s Bank of England meeting is also unlikely to announce any new policy action. On Friday US non-farm payrolls are likely to have risen by a smaller number in March following an average of 245,000 new jobs created in the past three months; initial claims for unemployment insurance benefits and the number of persons on regular state benefit rolls have fallen relatively less in the weeks prior to the March survey.

Markets in numbers

World equitiaes

Index

% 1W

% YTD

S&P 500 Composite

1408.47

0.8

12.0

Dow Jones Industrials

13212.04

1.0

8.1

NASDAQ Composite

3091.57

0.8

18.7

FTSE 100

5768.45

-1.5

3.5

Euro STOXX 600

263.32

-0.9

7.7

Nikkei 225

10083.56

0.7

19.3

Hang Seng

20555.58

-0.6

11.5

Benchmark government bonds

Yield

1W /bp

YTD /bp

US Treasury – 10 year

2.22

-2.1

34.3

UK Gilt – 10 year

2.11

-8.7

12.7

German Bund – 10 year

1.81

-6.3

-1.9

Japanese JGB – 10 year

0.99

-3.7

0.0

Credit indices

Yield

1W /bp

YTD /bp

IBOXX £ Non-gilts All maturities

4.77

-3.2

-19.3

ITRAXX Crossover 5 Year (MID)*

573.77

1.6

-176.7

Volatility index

Index

% 1W

% YTD

CBOE PX Volatility – VIX index

15.50

4.6

-33.8

Commodities

Index

% 1W

% YTD

Brent Oil ($/Barrel)

123.40

-1.5

14.0

Gold Bullion $/ Troy Oz

1663.80

0.0

5.7

Currencies

vs $

vs £

 

¥

82.30

131.5

 

$

 

1.60

 

Euro

1.332

1.200

 

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

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