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Market Insight for the Week Ended 23 Nov

Market Insight for the Week Ended 23 Nov


By Bryn Griffiths (CEO, Edge Capital Markets)

Equities

Global equities saw a significant reversal this week, to those recently, where strong inflows saw some exchanges jump over 5% for what was a holiday ridden week in the financial markets. Improving economic figures were the catalyst to this despite the issues of the fiscal cliff, Greece’s looming debt payment and the inability of the 17 euro regions Finance Ministers being able to agree on the EU’s next seven year budget still remaining unresolved. In the US, there was an improving tone to the housing market with a better than expected data release in Oct existing home sales (4.79m vs. 4.76m), Oct NAHB Housing Market Index (46 vs. 41) and housing starts 0.89m vs. 0.84m. It is important to note that the NAHB Housing market index printed the best figure since May 06 and the housing starts number was the best since Sept 08. These positive releases were supported later in the week with lower then expected unemployment claims (410k vs. 415k) and higher then Flash Manufacturing PMI (52.4 vs. 51.2). The equity markets were also given support from a set of European manufacturing and service figures that indicated that although not expanding the rate of decline was falling. Investors were also heartened by the HSBC Chinese Manufacturing data release that showed the country’s printed it’s first expansionary number since Nov 11. To cap of the week’s positive releases was the release of the German Ifo Business Climate numbers on Friday where the market happily got a print of 101.4 vs. and expected 99.6. The Japanese market continued its recent climb with another 3.8% added to the index. This has risen over 5% in the last 4 weeks on expectation there will be a change in government shortly that will see massive stimulus to attempt (again) to invigorate the Japanese economy. Investor’s fear levels fell indicated by a lower CBOE Volatility Index (VIX). This has now fallen 11.9% in the last 4 weeks.

Weekly Moves: Australia 200 +1.8%, Hong Kong +3.6%, Japan +3.8%, China +0.7%, France +5.6%, Germany +5.0%, UK +3.8%, Dow Jones +3.3%, S&P500 +3.7%, Nasdaq +4.2%

Currencies

The US dollar saw outflows this week with the US Dollar index closing down 1.3%. This was despite a continued strong USDJPY which has moved up 5.6% in the last 8 weeks. The Japanese yen continues to loose value against all its major trading currencies with the EURJPY having its biggest gain in 9 months. A perfect blend of expected Japanese stimulus, optimism on a Greek deal and better than expected Business Climate figures out of Germany has seen a move from 100 to 107 in the last 2 weeks. Clearly we are in the midst of a risk-on period. Commodity currencies gained over the week on an improving global economic landscape but more importantly a once again expanding Chinese Manufacturing sector which improved from 49.5 to 50.4 last month. A figure over 50 is an indication the sector is growing.

Weekly Moves: AUDUSD +1.1%, GBPUSD +0.9%, EURUSD +1.9%, NZDUSD +1.3%, USDCAD -0.9%, USDJPY +1.3%, USDCHF -0.8%

Interest Rates

This week saw outflows from the global bond markets as investors appetite for risk improved following a run of good economic numbers from all 4 corners of the globe as well as improved expectation on both a solution to the fiscal cliff issues and a Greek settlement to cover the next round of interest payments. A comment early in the week by the Federal Reserve Chairman indicating that a resolution to the fiscal cliff would likely remove an impediment to US growth next year. Investors clearly feel this issue will get resolved before it hits the economy full force. Investors were also encouraged by a cease fire agreement being reached between Israeli and Hamas leaders following a week of conflict.


3m 5y 10yr 30yr
US 0.10% (+0.02%) 0.69% (+0.08%) 1.69% (+0.11%) 2.83% (+0.10%)
UK 0.44% (+0.00%) 0.85% (+0.10%) 1.84% (+0.09%) 3.09% (+0.07%)
Germany -0.07% (-0.05%) 0.44% (+0.09%) 1.44% (+0.11%) 2.36% (+0.11%)
Japan 0.11% (+0.00%) 0.19% (+0.01%) 0.74% (+0.01%) 1.95% (-0.01%)
Australia 3.11% (-0.02%) 2.78% (+0.20%) 3.30% (+0.27%)

Metals

Precious Metals saw strong inflows with both Gold and Silver closing the week on their highs. A weaker USD and also an improving forward looking economic landscape has seen a week where investors have been very comfortable in adding risk to their portfolios. Technically gold closed the week above its recent ceiling of US$1740/oz. Bloomberg released the holdings of gold backed exchange traded products this week indicating they had reached a record of 2605 metric tons. For those not aware a metric ton of gold = 35,274oz. The improving manufacturing sector in China confirmed this week by the HSBC Manufacturing PMI printing 50.4 vs 49.5 last month (where a number above 50 is expansionary) saw investor move funds into copper for the first time in 3 weeks.

Weekly Moves: Gold +2.2%, Silver +5.7%, Copper +2.2%.
ends


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