Global Weekly Wrap up – last week

Wrap up – last week   

Eurozone crisis fears reignited, Italian equities slump 5% and Germany suffers a failed bond auction

European markets were closed on Monday due to the bank holiday. Tuesday saw investor sentiment severely tested as fears over the Eurozone crisis were reignited. Investors were concerned that Spain would breach its budget targets this year and that deeper austerity will push the country further into recession. Spanish and Italian ten-year bond yields surged to 5.99% and 5.68% respectively while the FTSE 100, IBEX 35 (Spain) and the FTSE MIB (Italy) slumped 2.2%, 3.0% and 5.0% respectively.

On Wednesday, Germany suffered an uncovered bond auction for the first time this year as its long-term cost of borrowing remained close to all-time record lows, at close to 1.63%. By Thursday, sentiment had improved on suggestions that the European Central Bank (ECB) was considering a resumption of purchases of Spanish bonds. Elsewhere, Britain’s trade deficit widened more than economists expected in February after exports to countries outside Europe fell. In the US, first-time claims for jobless benefits rose 13,000 to 380,000 in the week to April 7, its highest level since January. China’s economy grew by 8.1% in the first quarter compared to a year earlier, its slowest pace in almost three years.

In stock specific news, a month before its expected IPO, Facebook made the headlines with a $1billion acquisition of photo-sharing app, Instagram. The 13-employee company has attracted 30 million members in its first 18 months but is yet to generate any revenue.

Shaping the markets – this week

German ZEW & ifo surveys, UK unemployment, US & UK retail sales

The Eurozone trade balance is released on Monday. As sentiment has generally improved and global growth is in recovery mode, it is expected that seasonally adjusted exports will grow by 1.4% month-on-month (m-o-m) but imports will rise 3.5%. UK CPI inflation on Tuesday should reveal a slight increase to 3.5% year-on-year (y-o-y), due to food price inflation. The German ZEW economic sentiment survey is likely to show a small decline owing to a disappointing manufacturing sector. On Wednesday, the UK labour claimant count is expected to show a rise of 10,000 in March while the International Labour Organisation (ILO) UK unemployment rate should rise to 8.5% from 8.4% in the three months to February due to continuing weakness in economic growth. Friday sees the release of the German ifo survey. A moderate decline is likely as weakening growth in export markets in the euro area and expectations that US growth is likely to slow are only partially offset by solid domestic demand and a weakening of the euro. UK retail sales are likely to show an increase of 0.4% m-o-m owing to falling inflation and unusually warm weather in March.

In the US, retail sales are expected to show a rise of 0.3% on Monday due to a modest rise in real spending. Tuesday’s US home starts are likely to fall slightly from February’s pace, owing to a slight deterioration in sentiment. Elsewhere, Japan’s March trade deficit is likely to reach JPY 800 billion on Thursday as data shows exports fell 7.3% while imports grew by 10.5% y-o-y over the period.

Markets in numbers

World equities

Index

% 1W

% YTD

S&P 500 Composite

1370.26

-2.0

9.0

Dow Jones Industrials

12849.59

-1.6

5.2

NASDAQ Composite

3011.33

-2.3

15.6

FTSE 100

5651.79

-1.3

1.4

Euro STOXX 600

253.40

-2.2

3.6

Nikkei 225

9637.99

-0.5

14.0

Hang Seng

20701.04

0.5

12.3

Benchmark government bonds

Yield

1W /bp

YTD /bp

US Treasury – 10 year

2.00

-5.8

12.4

UK Gilt – 10 year

1.95

-12.1

-3.5

German Bund – 10 year

1.65

-8.9

-17.8

Japanese JGB – 10 year

0.95

-4.2

-4.1

Credit indices

Yield

1W /bp

YTD /bp

IBOXX £ Non-gilts All maturities

4.72

-5.6

-23.6

ITRAXX Crossover 5 Year (MID)*

625.75

15.3

-124.7

Volatility index

Index

% 1W

% YTD

CBOE PX Volatility – VIX index

19.55

17.1

-16.5

Commodities

Index

% 1W

% YTD

Brent Oil ($/Barrel)

121.13

-1.4

11.9

Gold Bullion $/ Troy Oz

1668.97

2.2

6.0

Currencies

vs $

vs £

 

¥

80.97

128.6

 

$

 

1.59

 

Euro

1.308

1.212

 

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

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