Market Insight - March 4
Market Insight
By Bryn Griffiths
(CEO, Edge Capital
Markets)
Equities
Global
equity markets saw capital inflows this week with most
exchanges squeezing out gains. The looming automatic US
budget cuts that were to take effect from 1st March did not
soften the markets appetite to buy stocks and to push the
Dow Jones to its highest level since 2007. The theme of
continued better than expected data releases out of the US
economy have many feeling that the recovery is gaining
traction. This week saw Conference Board Consumer Confidence
(69.6 vs 60.8) and Revised University of Michigan Consumer
Sentiment (77.6 vs 76.3) both print better than expected
data releases which is critical for the core growth of the
US economy. If the all important consumer is confident then
the markets certainly benefit. These, along with improving
pending home sales (4.5% vs 1.7%), falling unemployment
claims (344k vs 361k) and a rising ISM manufacturing PMI
(54.2 vs 52.7) paint a positive forward looking landscape in
the US. However, given all this, it will be interesting to
see what influence the fiscal drag will have going forward.
Leading into what is a total spending package of US$1.2
trillion over nine years, with US$85bln occurring over the
remainder of this fiscal year, at this stage its impact on
consumers seems muted. The CBOE Volatility index jumped a
whopping 9.7% this week up to 16.32 which indicates that
investors concerns are on the increase. We have seen a 14%
rise in this indicator over the last month. Asian markets
performed the best this week despite a decline in the pace
of growth of the Chinese Manufacturing sector last month.
Commentators are attributing this slowdown to the impact of
Chinese New Year celebrations so we will be watching the
next release to see if a trend is forming. The outcome of
the Italian Elections cast a cloud over the European markets
this week with the broader Europe Stoxx 50 closing the week
down 0.5%.
Weekly Moves: Australia 200 +1.4%, Hong Kong
+0.4%, Japan +2.0%, China +1.9%, France -0.2%, Germany
+0.6%,
UK +0.7%, Dow Jones +0.6%, S&P500 +0.2%, Nasdaq
+0.4%
Currencies
The
US dollar saw strong inflows during the week with the US
Dollar index closing up 1.0%. There were no real standouts
this week with AUDUSD, GBPUSD, EURUSD and NZDUSD all falling
between 1.2% and 1.5% indicating that the US was a favoured
destination for capital flows. Concerns about the hung
parliament in Italy and a deteriorating employment landscape
in Europe saw the EURUSD fall 1.2% this week with its
decline around 4.5% in the last 4 weeks. Continuing poor
data releases from the region indicate that growth will not
rebound any time soon. The AUDUSD and NZDUSD fell this week
on a slight reduction in the pace of growth of the Chinese
manufacturing sector and direct comments by both the RBA and
RBNZ heads about the high levels of their currencies. USDJPY
staged a recovery to close the week up 0.1% following the
G20 finance meeting comments which seemed to allow Japan to
continue its stimulus program but without making specific
reference to USDJPY levels.
Weekly Moves: AUDUSD -1.2%,
GBPUSD -1.4%, EURUSD -1.3%, NZDUSD -1.5%, USDCAD +0.4%,
USDJPY +0.1%,
USDCHF
+1.5%
Interest
Rates
This week saw inflows
into all the global markets as safe haven buying bought
investors back into this market. European poor economic data
releases and the unfavourable outcome of the Italian
elections which left one of Europe’s largest economies
with a hung parliament meant investors sought comfort in the
bond markets. This saw German bonds in demand with their
yields across the 2yr-30yr maturities down 10-16pts.
Testimony from US Fed Chairman Bernanke indicating that he
would keep supporting the US economy drove 10yr yields to
their biggest fall in 6 months – down to 1.84%. Pressure
is now building on both the Bank of England and the ECB to
look at ways of re-igniting their economies. The March 1
automatic spending cut date passed without any substantial
negative impact on the US Bond markets, so it seems there if
a belief that they will whether the storm at this stage.
Again, time will tell.
Closing Yields (Weekly Move):
3m 5y 10yr 30yr
US 0.11% (-0.01%) 0.74%
(-0.09%) 1.84% (-0.12%) 3.05% (-0.10%)
UK 0.36%
(-0.02%) 0.72% (-0.14%) 1.87% (-0.24%) 3.18%
(-0.19%)
Germany 0.01% (+0.00%) 0.40% (-0.16%) 1.41%
(-0.16%) 2.27% (-0.13%)
Japan 0.08% (+0.00%) 0.12%
(-0.02%) 0.66% (-0.07%) 1.79% (-0.13%)
Australia 2.90%
(-0.14%) 2.90% (-0.17%) 3.34%
(-0.20%)
Metals
Precious
metals saw outflows this week as investors start to digest
what an ongoing reduction in US fiscal spending will have on
inflation. At this stage the vote seems to be that
deflationary forces are at play and this is no good for
precious metals. It seems that it will take a few months
before the reality of spending cuts kick in and whether any
alternative agreement can be reached. Despite the fall in
gold prices we continue to hear that central banks are
continuing their purchases. Copper fell this week on a
decline in the growth of the Chinese manufacturing sector.
Both the HSBC and Official Chinese Manufacturing data
releases missed to the downside. Copper has now fallen over
7% in the last 4 weeks.
Weekly Moves: Gold -0.3%, Silver
-0.3%, Copper -1.0%