Market Insight - 3 Dec 2012
By Bryn Griffiths (CEO, Edge Capital Markets)
Global equities saw continued inflows this week albeit at a slower pace then previous weeks. The US market was supported by fund buying as they went into the MSCI Index rebalancing final session of the year. Next week all focus will again turn to the fiscal cliff negotiations in the US, where it is becoming more evident by the day that there is unlikely to be a quick resolution to this with some commentators starting to use the phrase “stalemate”. As the week closed Obama stated that there would be “prolonged negotiations” and House Speaker John Boehner told reporters that “right now we’re almost nowhere”. If this is in fact the case and no agreement is reached then the US economy will be facing a whopping US$607bln of automatic tax increases and spending cuts at the beginning of 2013. There is no doubt this will hurt an economy which once again showed signs this week that it is gaining strength. Manufacturing, housing and the consumer all showed improvements last month with Core Durable Goods Orders printing +1.5% vs -0.6%, pending home sales printed +5.2% vs 0.9% and the all important US consumer’s confidence rose for the 3rd consecutive month printing 73.7 vs 73.1. The European region continues to be presented with headwinds despite the German lawmakers passing Greece’s latest rescue package. Germany, the core, is definitely being impacted by the prolonged problems with the peripheral countries. The German consumer climate took a further knock last month with the data missing to the downside when release at 5.9 vs expected 6.3. Wide based European unemployment remained at 11.7% despite the rise in Italy’s monthly unemployment rate which deteriorated to 11.1% from 10.9% last month. At this stage it appears that inflation in the region is under control, so there is further room for the ECB to inject further funds if required. To note, Moody’s downgraded the European Stability Mechanism (ESM) to Aa1 from Aaa and the European Financial Stability Facility provisionally to Aa1 from Aaa. This will have an impact on the cost of the fund to borrow money. The CBOE Volatility index continues to fall as investors grow more confident. The index stands at 15.5% and has now fallen 12.6% in the last 4 weeks.
Weekly Moves: Australia 200 +2.1%, Hong Kong +0.5%, Japan +0.8%, China -2.3%, France +0.8%, Germany +1.4%, UK +0.8%, Dow Jones +0.1%, S&P500 +0.5%, Nasdaq +1.3%
The US dollar saw minor flows this week with the US Dollar index closing flat. Currencies were again sidelined by investors with the Major currencies closing within +0.3 to -0.4% of last weeks closes. Focus for this market will now be on the progress in Washington to a resolution to the fiscal cliff stand-off. Our FX desk has reported today that NZDUSD vols have fallen to the lowest in 15 years evidencing investor’s lack of interest in the market. The recent strong rally in the USDJPY consolidated this week, with all eyes now on the election outcome of the 16th December where it is widely expected the pro stimulus LDP party will regain control again and aggressively stimulate the Japanese economy through a weaker Yen policy. The USDJPY has now rallied 5% in the last 8 weeks. This has translated into a 6.5% rally in the export heavy Japanese Nikkei stock index. Some further devaluing of the Yen will be required to stave off insolvencies of some major Japanese exporters. Sharp and Panasonic have recently had their bond ratings reduced Junk by S&P.
Weekly Moves: AUDUSD +0.1%, GBPUSD -0.1%, EURUSD -0.2%, NZDUSD -0.4%, USDCAD +0.3%, USDJPY +0.1%, USDCHF +0.0%
This week saw inflows into the global bond markets as investors sought some degree of safety from a lack of resolution to the Fiscal Cliff negotiations between the White House and US Senate. The movements in these markets swing from supported one week to unsupported the following depending on central bankers and country leaders’ comments. This week is big in terms of interest rate announcements with Reserve Bank of Australia (430pm Tuesday NZT), Bank of Canada (300am Wednesday NZT), Reserve Bank of New Zealand (9am Thursday NZT), Bank of England (100am Friday NZT) and European Central Bank (230am Friday NZT). Only the RBA is forecast to change rates with a 25bp cut expected. There rest are forecast to remain unchanged. The Italians’ 10yr bond Auction yield fell to 4.45% from 4.81%.
|US||0.08% (-0.02%)||0.62% (-0.07%)||1.62% (-0.07%)||2.81% (-0.02%)|
|UK||0.44% (+0.00%)||0.82% (-0.03%)||1.78% (-0.06%)||3.03% (-0.06%)|
|Germany||-0.07% (+0.00%)||0.41% (-0.03%)||1.39% (-0.05%)||2.29% (-0.07%)|
|Japan||0.10% (-0.01%)||0.17% (-0.02%)||0.72% (-0.02%)||1.95% (+0.00%)|
|Australia||3.05% (-0.05%)||2.67% (-0.11%)||3.16% (-0.14%)|
Precious Metals saw strong outflows with both Gold and Silver closing the week lower. After a strong move up in the silver prices recently it seemed the uncertainty around Fiscal Cliff discussions led investors to take profits provided, and possibly now sit in cash awaiting the next lead. Lack of inflation globally at the moment, evidenced by flat or negative recent data releases is not giving any support to this market at present. In contrast the price of copper rallied strongly this week to close up 2.9%. As copper is used as a future measure of perceived growth it seems the market is expecting good GDP data releases in the coming month. We have a significant stream of data releases this week that should give some further clarity to the global economic landscape.
Weekly Moves: Gold -2.1%, Silver -2.1%, Copper +2.9%.