Wrap up – last week

Global growth worries pile on

Equities had little to cheer last week as global growth worries deepened. Throughout the week, investors digested earnings warnings from US corporations and weak economic data from Asia. Japanese machinery orders for May showed the biggest drop since 2005; there was a surprise contraction in employment figures in Australia and while inflation fell in China both imports and exports lost pace. The saving grace at the end of the week was China’s Q2 gross domestic product (GDP) number, which although showing a slowdown was not as bad as feared.

Central bank action came from Japan, Brazil and South Korea. The latter two cut interest rates (South Korea for the first time in three years), while Japan increased its asset purchase programme by a small margin. Minutes of the latest Federal Reserve (Fed) policy meeting showed a reluctance to embark on further stimulus for the time being.

Core government bonds were in demand again: 2-year yields remained negative in Germany and the Netherlands and France joined the ranks by selling short-term bills at a negative yield for the first time. Meanwhile, Italy was downgraded by Moody’s (two notches) but managed to sell over €5bn of medium and long-term bonds. Spain announced €65bn of further austerity measures following the European finance ministers’ agreement on Monday on support for Spanish banks. Spanish government bond yields also eased. Crude oil had a choppy week on headline news, uncertainty about Iran and industry troubles in Norway; however, Brent crude oil was up 4% on the week.

Shaping the markets — this week

Bernanke in Humphrey Hawkins testimony to the US Congress

After the disappointing Fed policy minutes, investors will hang on to every word the Fed chairman has to say for clues on additional easing measures at his two day, semi-annual, Monetary Policy (formerly Humphrey Hawkins) testimony on the state of the economy. In a busy week for data in the US, the ones to watch are June retail sales, expected to remain weak; industrial production, for a rebound from the drop in May, and given the slowdown in manufacturing, the empire manufacturing survey and the Philly Fed (Philadelphia Fed) survey, which dropped sharply last month (May -16.6), for signs of improvement. Mid-week, the Fed’s beige book of economic activity for July will be released.

In the UK, May’s unemployment rate is due on Wednesday having risen to 8.2% at the last reading. Retail sales for June, out on Thursday, will reveal whether the Diamond Jubilee celebrations have neutralised the effects of the poor weather. Prior to that, on Tuesday, June’s consumer price index (CPI) will be released and could show a 0.1% contraction month-on-month (MoM).

In Europe, apart from the euro area CPI for June — expected to remain unchanged MoM — two other noteworthy releases come from Germany. The July ZEW Economic Sentiment survey, which came in at a negative 16.9 in June, is expected to deteriorate further albeit not to the same extent whilst June’s producer price index should reveal any signs of price pressure.

In Asia, the jobless rate is expected to rise in Hong Kong and inflation to have gathered pace in India, while given the global macroeconomic uncertainty, export orders in Taiwan should stay weak and trade data for Singapore is likely to worsen.

Markets in numbers

World equities

Index

% 1W

% YTD

S&P 500 Composite

1356.78

0.2

7.9

Dow Jones Industrials

12777.09

0.0

4.6

NASDAQ Composite

2908.47

-1.0

11.6

FTSE 100

5666.13

0.1

1.7

Euro STOXX 600

256.26

0.7

4.8

Nikkei 225

8724.12

-3.3

3.2

Hang Seng

19092.63

-3.6

3.6

Benchmark government bonds

Yield

1W /bp

YTD /bp

US Treasury – 10 year

1.50

-4.4

-37.6

UK Gilt – 10 year

1.47

-5.6

-50.7

German Bund – 10 year

1.25

-10.1

-57.9

Japanese JGB – 10 year

0.77

-3.8

-21.8

Credit indices

Yield

1W /bp

YTD /bp

IBOXX £ Non-gilts All maturities

4.29

-13.6

-67.5

ITRAXX Crossover 5 Year (MID)*

658.81

-9.4

NA

Volatility index

Index

% 1W

% YTD

CBOE PX Volatility – VIX index

16.74

-2.1

-28.5

Commodities

Index

% 1W

% YTD

Brent Oil ($/Barrel)

102.27

4.1

-5.6

Gold Bullion $/ Troy Oz

1591.84

0.3

1.1

Currencies

vs $

vs £

 

¥

79.20

123.1

$

1.55

Euro

1.225

1.271

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

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