Global Weekly Wrap Up – last week

Wrap up – last week

Further central bank intervention, weak US jobs data

Like the British weather, economic data continued to provide a gloomy outlook. Manufacturing surveys released at the start of the week revealed that output in the US, UK, Eurozone, China and Japan fell in June. Meanwhile, a UK services report showed that growth in the sector had fallen to an eight-month low. On the upside, the Bank of Japan’s closely watched Tankan survey indicated that business sentiment in the country improved in the second quarter, albeit from low levels. In company news, Bob Diamond, Barclays’ chief executive, resigned in the wake of the Libor rate-setting scandal.

On Thursday, Spain successfully auctioned €3bn of debt and Ireland re-entered the capital markets for the first time in almost two years. However, this news was somewhat overshadowed by further central bank action to stimulate growth: The Bank of England raised its asset purchase programme by £50bn to £375bn in total; the People’s Bank of China cut its key one-year lending rate for the second time in a month, and the European Central Bank (ECB) reduced its benchmark interest rate to a record low of 0.75%, as widely anticipated, but surprised many by cutting the rate it pays banks to deposit money at the central bank to zero, to encourage interbank lending. Friday’s all-important US non-farm payrolls data release revealed that 80,000 new jobs were added in June, below the expected 100,000.

Yields on Spanish 10-year sovereign bonds edged northwards again to 6.93% by the end of the week, marginally below the 7% level that is deemed to be unsustainable by markets. Italian 10-year government paper also came under selling pressure, whilst demand for ‘safe-haven’ assets such as German bunds and US treasuries increased. The euro continued to fall in value against most major currencies.

Shaping the markets — this week

Fed to reveal current stance, world awaits China’s GDP data

Following last week’s central bank intervention, markets will be keen on Wednesday to dissect the minutes from June’s Federal Open Market Committee meeting, which should provide further insight as to whether the Federal Reserve intends to extend its growth stimulus programme. The Bank of Japan may also announce further action on Thursday.

Consensus expectations are for China’s foreign trade report on Tuesday to reveal that the rate of growth in exports declined to 8.0%, year-on-year (y-o-y), from 15.3% previously, whilst imports are set to moderate to around the 10% mark. Elsewhere, the British Retail Consortium’s retail sales report is expected to tick up from May’s 1.3% y-o-y increase, although economists’ expectations are for surveys connected to the industrial sectors of France, Italy and the UK to have weakened further in June. On Wednesday, data may reveal that recent rate cuts in Australia have led to home loans rising in May from +0.2% in April, month-on-month (m-o-m). On the same day, consensus expectations are for the US trade deficit to have fallen to around $48.3bn in May from $50.1 in April. On Thursday, markets will be keen to see if industrial production across the Eurozone continues to contract. US import prices are expected to have fallen 1.6% in June (m-o-m) on the back of softer commodity prices.

A number of releases out of China on Friday will provide further insight as to how the world’s second largest economy is coping with the global slowdown, with Q2 GDP growth of 7.8% expected versus 8.1% in Q1 2012, year-on-year. Finally, the University of Michigan US Consumer Sentiment Index is likely to remain around last month’s 73.2 level as Eurozone and domestic woes continue.

Markets in numbers

World equities

Index

% 1W

% YTD

S&P 500 Composite

1354.68

-0.6

7.7

Dow Jones Industrials

12772.47

-0.8

4.5

NASDAQ Composite

2937.33

0.1

12.8

FTSE 100

5662.63

1.6

1.6

Euro STOXX 600

254.40

1.3

4.0

Nikkei 225

9020.75

0.2

6.7

Hang Seng

19800.64

1.9

7.4

Benchmark government bonds

Yield

1W /bp

YTD /bp

US Treasury – 10 year

1.54

-11.4

-33.1

UK Gilt – 10 year

1.53

-12.9

-45.1

German Bund – 10 year

1.35

-25.1

-47.9

Japanese JGB – 10 year

0.81

-3.2

-18.0

Credit indices

Yield

1W /bp

YTD /bp

IBOXX £ Non-gilts All maturities

4.42

-16.3

-53.9

ITRAXX Crossover 5 Year (MID)*

668.16

1.0

NA

Volatility index

Index

% 1W

% YTD

CBOE PX Volatility – VIX index

17.10

0.1

-26.9

Commodities

Index

% 1W

% YTD

Brent Oil ($/Barrel)

98.25

2.9

-9.3

Gold Bullion $/ Troy Oz

1587.35

-0.6

0.8

Currencies

vs $

vs £

¥

79.55

123.4

$

1.55

Euro

1.231

1.261

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

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