2

Click here to load reader

Macro & markets weekly october 15th 2012

Embed Size (px)

Citation preview

Page 1: Macro & markets weekly october 15th 2012

October 15th, 2012

Market Recap Equity markets moved lower last week with the slower global growth theme

dominating the headlines. Many of the major indices suffered their worst

weekly performance since June. The tech-heavy Nasdaq Composite was among

the worst performers in the U.S., down 2.94%. Core and Peripheral bond yields

both moved lower while the Euro fell back slightly.

Spanish Downgrade – A Good Thing? Standard & Poor’s downgraded Spanish Sovereign debt on Wednesday citing

mounting economic and political risks. The ratings agency lowered its long term

sovereign credit rating on Spain by two notches to BBB- from BBB+ with a

negative outlook. They have also lowered the short term sovereign credit rating

to A-3 from A-2. The longer term negative outlook reflects their view of

“significant risk to Spain’s economic growth and budgetary performance, and

the lack of a clear direction in Eurozone policy”. Market reaction was muted and

in a perverse way it has been viewed as a positive since it could prompt Spain

to ‘submit’ to a Eurozone bailout. Spanish bond yields declined for the week.

IMF Outlook The IMF launch of the 2012 World Economic Outlook kicked off the World

Bank/IMF Annual Meetings in Tokyo last week. Essentially the IMF confirmed

what we already knew - the global recovery has weakened due to fiscal

austerity and a dysfunctional financial system. Despite confirming that fiscal

consolidation is hurting growth, Oliver Bernard, IMF Chief Economist reiterated

in the foreword of the report that “Spain and Italy must follow through with

adjustment plans that re-establish competitiveness and fiscal balance and

maintain growth”. The problem is that no country has been able to maintain

growth while restructuring and deleveraging their economy. The multiplier

effect on GDP of spending cuts and higher taxes, imposed under austerity, has

been greatly underestimated.

Of course it can be argued that the alternative of increasing fiscal spending and

government debt to support domestic demand is just prolonging the inevitable.

This is what we have seen in the U.S. where their debt burden and budget

deficit have ballooned. Their economic recovery has been stronger than in the

UK and Europe, but it has been modest by historical standards. They now face a

‘fiscal cliff’ of expiring Bush-era tax cuts and spending cuts. Outside of the

Eurozone debt crisis this remains the biggest cause for concern for companies

and investors. The most likely scenario is that they kick the can further down

the road, but it has the potential to severely disrupt markets in the short term.

European Union – Nobel Prize Winner 2012 When Barack Obama won the Nobel Peace Prize in 2009, people thought it

strange, a man one year into his U.S. presidency and Commander-in-Chief of

the world’s largest military fighting two wars in Afghanistan and Iraq. The latest

announcement that the European Union has won the Nobel Peace Prize seems

just as strange, if not stranger. While the award to Barack Obama was an

endorsement to promote “international diplomacy”, the 2012 award is a clear

call to European Union leaders to unite and solve the Eurozone debt crisis. The

award is for the advancement of peace over the last six decades but in a way it

says more about the future than the past. For me, it illustrates the real concern

that exists about the future of the European Union and the Euro.

Vincent McCarthy, CFA Senior Investment Consultant Actuarial and Investment www.invesco.ie +353 1 294 7600

Senior Investment Consultant

Actuarial and Investment www.invesco.ie +353 1 294 7600

MACRO & MARKETS WEEKLY Senior Investment Consultant

Actuarial and Investment www.invesco.ie +353 1 294 7600

Market Summary

Equity Indices Value 1Wk YTD

North America DJIA 13328.85 -2.07% 9.10%

NASDAQ Comp 3044.11 -2.94% 16.85%

S&P 500 1428.59 -2.21% 13.60%

Europe FTSE Eurofirst

300 1093.33 -1.65% 9.18%

FTSE 100 5793.32 -1.32% 3.97%

CAC 40 3389.08 -1.97% 7.26%

DAX 7232.49 -2.24% 22.62%

Asia-Pacific NIKKEI 225 8535.12 -3.70% 0.94%

HANG SENG 21136.43 0.59% 14.66%

Gov. Bond Yields Yield 10 YR Wk Chg Yr Chg

Germany 09/22 1.46% -0.05 -0.27

Ireland 10/20 4.73% -0.27 -2.99

U.K. 09/22 1.72% -0.04 -0.54

Japan 09/22 0.77% -0.01 -0.23

USA 08/22 1.66% -0.07 -0.12

Forex Rate 1 Wk YTD

EUR/USD $1.297 -0.69% 0.61%

EUR/GBP $0.806 -0.12% -3.51%

EUR/Yen ¥101.60 -1.17% 1.72%

USD/YEN ¥78.36 -0.43% 1.85%

Commodities Price 1 Wk YTD

WTI Crude Oil $91.86 2.20% -7.05%

Brent Crude Oil $114.62 2.32% 6.74%

Gold 100 Oz $1,768.80 -1.21% 12.38%

Official CB Rates Rate

Euro Refi 0.75% Fed Funds 0.00 - 0.25% UK 0.50% Japan 0.00-0.10%

Source: FT/Reuters

Page 2: Macro & markets weekly october 15th 2012

Dublin 2 Sandyford Business Centre, Burtonhall Road, Sandyford, Dublin 18, Ireland tel +353 1 294 7600 fax +353 1 294 7633 Cork 7 Webworks, Eglinton Street, Cork, Ireland tel +353 21 480 8041 fax +353 21 431 0530 Web www.invesco.ie e-mail: [email protected] Invesco Limited is regulated by the Central Bank of Ireland. An analysis of Invesco’s activities between those that are regulated by the Central Bank of Ireland and those that are not is set out on the company’s website www.invesco.ie.

Quote of the Week

No better man to bring the woes of Irish football and our banking system

together in one great quote. Dissecting the failure of Giovanni Trapattoni’s

tenure as National manager, the always entertaining Eamonn Dunphy remarked

“In football all of the mistakes catch up with you. It’s not like being a banker,

you actually pay the price”. The “Anglo Three” will be hoping this will continue

to be the case when they appear before the Dublin Criminal court this week.

Outlook Key macro data for the week ahead includes industrial production data from

the U.S., Japan and China. There is retail sales data due out from the U.S., UK

and China. We have also inflation data due out from the U.S., Europe, UK and

Canada. The third quarter GDP report from China will be keenly watched with

the economy expected to have grown 7.4%. U.S. housing will shed more light

on the strength of the housing market recovery. U.S. initial jobless claims will

be important after the surprise decline last week to 339,000 from 370,000,

albeit with a few caveats. The European Council Summit Thursday and Friday

with the heads of government from the 27 member states has the potential to

cause some market moving headline news. The Troika will be in Dublin this

week reviewing ‘our progress’ as we approach budget time.

The October market correction, which I had been expecting following the

significant rally in the third quarter, has been relatively mild so far. Volatility has

moved up slightly but it remains close to an historic low. Equity markets have

moved lower but we haven’t seen dramatic sell offs, rather a gradual decline

more akin of profit-taking than risk-off behaviour. Peripheral bond yields have

also continued to move lower easing concern about the Eurozone debt crisis.

However, with Greece only six weeks away from running out of money, any

delay in the next tranche of their bailout could lead to increased market

turbulence.

Economic Calendar – Key Events

Indicator Region For

Monday Industrial Production JAPAN Aug

Retail Sales US Sept

NY Empire State Manufacturing US Oct

Tuesday Consumer Price Inflation (CPI) EUR Sept

Consumer Price Inflation (CPI) US Sept

Consumer Price Inflation (CPI) UK Sept

Producer Price Inflation (PPI) UK Sept

Industrial Production US Sept

ZEW Economic Sentiment GER Oct

Wednesday Housing Starts US Aug

Building Permits FR Aug

GDP China Q3

Fixed Asset Investment China Sept

Retail Sales China Sept

Claimant Count UK Sept

MPC Meeting Minutes UK Oct

Thursday Retail Sales UK Sept

Initial Jobless Claims US Week

Friday Existing Home Sales US Sept

Consumer Price Inflation (CPI) CAD Sept

For additional information, or to subscribe to weekly updates, please visit www.invesco.ie