Market Insight - Feb 25
MARKET INSIGHT
By Bryn Griffiths
(CEO, Edge Capital
Markets)
Equities
Global
equity markets ended the week with mixed results. Many
exchanged ended relatively unchanged but that did not
represent the volatility seen as Federal Reserve minutes
from their last meeting were released and showed a number of
junior members wanting the FED to consider varying the pace
of the US$85bln monthly bond purchases. It is probably
important to note that the senior members remained resolute
in their plan to bring unemployment down and continue the
plan. I know where my money would be in that debate. This
dissention gave the markets a wee wobble, but equally not
surprising as the market really were looking for an
opportunity to settle for a while following such a strong
run in the first 2 /3 months of 2013. The key measure of
volatility, the CBOE VIX rose nearly 3% this week. The
Chinese market was the worst performing index this week
closing down 4.85% on the back of increasing concerns that
Chinese officials will start looking to tighten monetary
conditions to manage the once again property market that is
heating up. This impacted on heavy weight property and
banking stocks. European exchanges closed the week with
little fanfare as all eyes were focusing on the weekend’s
Italian Election. There could be some interesting price
action in the UK market when it reopens on Monday following
the downgrading of their sovereign debt by Moody’s just
prior to the US market close. Also looming this week is the
March 1 automatic US spending cuts that were kicked down the
road from the infamous Jan 1 deadline. Will we see any
progress finally on this front?
Weekly Moves: Australia
200 -0.3%, Hong Kong -2.8%, Japan +1.9%, China -4.9%, France
+1.3%, Germany +0.9%, UK +0.1%, Dow Jones +0.1%, S&P500
-0.2%, Nasdaq
-1.0%
Currencies
The
US dollar saw strong inflows during the week with the US
Dollar index closing up 1.0%. The EURUSD closed the week
down 1.4% on concerns around the outcome of the Italian
Elections where it seemed the anti-austerity Berlusconi was
gaining popularity as well as the fact that European banks
returned less than forecasted funds borrowed during the
second Long Term Refinancing Operation (LTRO). The banks
returned EUR61bln vs an expected EUR122bln. This clearly
indicates that European banks are still holding onto funds
and therefore there are still perceived risks in the region
in the eyes of the bankers. The biggest looser this week was
the GBP which closed the week on its knees following the
downgrade by Moody’s of the UK Sovereign Debt rating. The
GBPUSD is now down nearly 6% in the last 8 weeks.
Weekly
Moves: AUDUSD +0.1%, GBPUSD -1.8%, EURUSD -1.4%, NZDUSD
-0.7%, USDCAD +1.6%, USDJPY +0.0%, USDCHF
+0.9%
Interest
Rates
This week saw inflows
into all the global markets except Australia which saw
selling across their curve following a somewhat neutral
statement from Australian Reserve Bank Governor Stevens. The
market had priced in over 50bp cuts to their cash rate by
the end of the year. Gov Stevens said that there was a
significant amount of stimulus in the system that was still
working its way through, and that the current overnight cash
target at 3% is appropriate. Concerns around the Italian
election result as well as the less that forecast return of
banks Euro’s borrowed for stimulus purposes saw safe haven
buying of German bonds drive their yields lower for the
week. The debate about the Federal Reserve pulling out its
stimulus was ignored by the bond markets where the
“Smart” money plays where yield remain subdued during
the volatility experienced in the Forex and Equity markets.
The US automatic spending March 1 date now looms and may see
safe haven buying leading up to any outcomes.
Closing
Yields (Weekly Move):
3m 5y 10yr 30yr
US 0.12%
(+0.02%) 0.83% (-0.02%) 1.96% (-0.04%) 3.15%
(-0.03%)
UK 0.38% (+0.02%) 0.86% (-0.11%) 2.11%
(-0.08%) 3.37% (-0.06%)
Germany 0.01% (-0.04%) 0.56%
(-0.10%) 1.57% (-0.08%) 2.40% (-0.04%)
Japan 0.08%
(-0.02%) 0.14% (+0.00%) 0.73% (-0.02%) 1.92%
(-0.02%)
Australia 2.90% (+0.02%) 3.07% (+0.03%) 3.54%
(+0.02%)
Metals
Precious
metals saw strong outflows again this week as continued
positive global economic data releases saw investors no
longer needing safe harbour and exited the precious metals
market. This belief was supported by minutes from the
Federal Reserve indicting members wanted to consider
reducing their bond purchasing program suggesting that
things were improving out in the economy. We have now seen
Silver fall 8% and gold down 4.7% in the last 4 weeks.
Copper tumbled this week as US and European manufacturing
data releases missed to the downside.
Weekly Moves: Gold
-1.8%, Silver -3.5%, Copper
-5.0%
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