Market Insight - Week Ended 8 Feb 2013

MARKET INSIGHT
By Bryn Griffiths (CEO, Edge Capital Markets)

Equities
Global equities once again saw capital flows mixed with the dominant outflows continuing from the European exchanges. Comments from the European Central Bank head Mario Draghi indicating a continued strong Euro currency would hurt the recovery of the region and political concerns in Italy (anti austerity Berlusconi closing the gap on Bersani in Italian leaders elections) and Spain (calls for Spain’s Prime Minister to resign of corruption allegations) saw the European markets fall significantly this week. The broader Stoxx50 index fell close to 3% for the week highlighting the euro wide declines. Despite this it would only be fair to note that the US stock index S&P500 reached the highest levels since 2007 this week on the back of stronger than estimated corporate earnings. As reported by Bloomberg 75% of the 341 S&P500 companies that have released results so far have exceeded profit projections, and 67 have beaten sales estimates. With the balance of companies still to report, should this trend continue, inflows into the US exchanges should continue for some time. The Nikkei paused for a breather this week as the near 24% rally over the last 12 weeks stalled after Japanese Finance Minister Taro Aso indicated the pace of depreciation of the Japanese Yen had been too fast.
Weekly Moves: Australia 200 +1.0%, Hong Kong -2.1%, Japan -0.3%, China +0.5%, France -3.3%, Germany -2.4%, UK -1.3%, Dow Jones -0.1%, S&P500 +0.3%, Nasdaq +0.4%

Currencies
The US dollar saw inflows during the week with the US Dollar index closing up 1.3%. The USD rise was supported from the Euro zone by comments from European Central Bank head Mario Draghi indicating that a rapidly rising Euro currency could hamper a recovery. This saw the EURUSD the worst performer of the week falling 2.1%. The rapid rise in the USDJPY (over 14% in the last 12 weeks) finally caught the eye of Japanese officialdom and lead to a comment from Japanese finance minister Aso stating that the rise had been too rapid. These moves have no doubt lead to profit taking by traders and some covering by importers. It is hard to see that the decline will be substantial as the primary focus of the newly elected Japanese Government is to inflate their way out of a long economic slumber, and the only way they can realistically do this is export their way to financial freedom! This will mean eager traders and exporters will be lining up orders below the market.
Weekly Moves: AUDUSD -0.9%, GBPUSD +0.6%, EURUSD -2.1%, NZDUSD -1.6%, USDCAD +0.2%,
USDJPY -0.1%, USDCHF +1.0%

Interest Rates
This week saw inflows of capital into the global bond markets as the political concerns in Europe again ignited investor’s concerns that the Eurozone debt crisis is not quite behind us just yet. Spanish Prime minister Rajoy faced calls for his resignation after a newspaper report alleged that he had accepted illegal cash payments. This along with a closing of the gap in the Italian Prime Ministers race between anti-austerity former Premier Berlusconi and the man expected to lead Italy Pier Luigi Bersani. In true Italian political style Bersani is currently appealing his four year prison sentence for tax fraud. US 10yr yields fell back below the 2% level to close the week at 1.95%.
Closing Yields (Weekly Move):

Metals
Precious metals saw outflows this week as it appears they are being seen as a safety bet, and with stability attempting to prevail, risk off proponents are slowly exiting this market. This along with a generally stronger US Dollar saw precious metals close the week down. All eyes will continue to be heavily focused on the inflation numbers globally to see if there are any risks developing which will see flows come back into the inflation hedge metals. Copper closed the week down leading into the week long Chinese New Year holiday season. Copper has now increased nearly 9% in the last 12 weeks on an improving global economic landscape.
Weekly Moves: Gold -0.1%, Silver -1.6%, Copper -0.6%

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