Wrap up – last week   

Fed disappoints whilst Eurozone sovereign debt concerns persist

Renewed Eurozone debt concerns combined with fading hopes that the US Federal Reserve would provide further quantitative easing (QE) to boost its economy caused most major equity markets to weaken. Consequently, US Treasury yields fell over the week whilst the dollar gained against the euro and sterling, but fell versus the yen. Disappointing US non-farm payrolls data on Friday revealed that 120,000 jobs had been created, which was lower than expectations. The price of gold fell on the strength of the dollar and oil prices eased down as inventories in the US rose.

The Markit Eurozone Manufacturing Purchasing Managers’ Index (PMI) fell to 47.7 in March, a three-month low, amid signs that weakness in the sector is spreading from the region’s periphery to the core. March service sector PMI data released for the region again reflected a contraction. Meanwhile, as unemployment levels in Spain reached a record high of 4.75 million, a poorly-received auction of sovereign debt midweek in Madrid led to the yield on 10-year Spanish sovereign debt rising to 5.8%, the highest level since January. The 10-year yield on Italian government debt also increased on economic concerns, whilst yields on long-term German bunds fell as investors sought less-risky assets.  With such a fragile backdrop in Europe, Mario Draghi, president of the European Central Bank, indicated the bank would not be moving away from its loose monetary policy any time soon. The Bank of England kept interest rates on hold and China opened the door to greater international investment into its financial and banking sectors by almost tripling the amount overseas investors can invest to US $80 billion.

Shaping the markets – this week

First estimate of China Q1 2012 economic growth, US inflation likely to be weaker

Wednesday’s British Retail Consortium report on UK retail sales for March is expected to remain reasonably flat after February’s marginal 0.3% decline. Meanwhile, Thursday’s Eurozone industrial production data release is likely to show a small month-on-month (m-o-m) rise in February, with the cold snap in February expected to have boosted energy output. In France, consumer price inflation (CPI) is likely to show a slower pace of growth than the 2.5% year-on-year registered in February. Food prices are likely to have fallen on the back of better weather conditions and prices for other services, such as communications, are expected to have declined due to a more competitive environment.

Estimated first quarter gross domestic product (GDP) for China is expected to come in at 8.4%, lower than the 8.9% annualised recorded in the previous quarter. Finally, in the US, lower gasoline prices are likely to have caused a fall in retail energy costs and a decline in the rate of inflation in March. The forecast is for consumer prices to have risen by 0.2% m-o-m, much less than the 0.4% rise in February.

Markets in numbers

World equities

Index

% 1W

% YTD

S&P 500 Composite

1398.08

-0.7

11.2

Dow Jones Industrials

13060.14

-1.2

6.9

NASDAQ Composite

3080.50

-0.4

18.3

FTSE 100

5723.67

-0.8

2.7

Euro STOXX 600

259.07

-1.6

5.9

Nikkei 225

9688.45

-3.9

14.6

Hang Seng

20593.00

0.2

11.7

Benchmark government bonds

Yield

1W /bp

YTD /bp

US Treasury – 10 year

2.06

-16.2

18.2

UK Gilt – 10 year

2.07

-4.1

8.6

German Bund – 10 year

1.74

-6.9

-8.9

Japanese JGB – 10 year

0.99

0.1

0.1

Credit indices

Yield

1W /bp

YTD /bp

IBOXX £ Non-gilts All maturities

4.78

1.3

-18.0

ITRAXX Crossover 5 Year (MID)*

610.45

36.7

-140.0

Volatility index

Index

% 1W

% YTD

CBOE PX Volatility – VIX index

16.70

7.7

-28.6

Commodities

Index

% 1W

% YTD

Brent Oil ($/Barrel)

122.84

-0.5

13.5

Gold Bullion $/ Troy Oz

1632.78

-1.9

3.7

Currencies

vs $

vs £

 

¥

81.53

129.4

 

$

 

1.58

 

Euro

1.308

1.213

 

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

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