Ashburton weekly news insights: In the hands of Policymakers
“We are determined to do whatever is necessary for the recapitalisation of our banks” - Angela Merkel, 9th October 2011
“We will stand by the euro…we will do whatever is necessary” - Angela Merkel, 12th January 2011
Markets remain in the hands of policymakers. Last week, the Bank of England decided to increase QE by a further £75bn over the next four months. The ECB left interest rates unchanged, but agreed to provide as much liquidity as banks ask for over the coming year, as well as increasing purchases of covered bonds by €40bn (a key funding market for European banks).
Merkel and Sarkozy met at the weekend and agreed to come up with a plan to resolve the European debt crisis by the end of the month, without specifying details - sounds familiar? Time will tell whether they can deliver this time. As Credit Suisse strategists have argued, a credible resolution would require (i) some clarity over Greece; (ii) credible measures to ring-fence Italy and Spain; and (iii) a framework for injecting capital and restoring liquidity for European banks.
In the US, the economic data generally surprised positively again. The key ISM surveys for both manufacturing and services were better than expected, as were vehicle sales and the employment report for September. The recent resilience of US economic data in the current quarter has been one of the few recent bright spots.
China was closed last week for the Golden Week holiday.
Market Update
|
Total Return* (local currency) |
||||
|
Equity Indices |
|
-5d |
-3mth |
Year-to-Date |
|
MSCI AC World |
1.3 |
-14.8 |
-12.9 |
|
|
S&P 500 |
-0.4 |
-13.9 |
-8.7 |
|
|
MSCI Europe |
4.6 |
-16.3 |
-15.2 |
|
|
FTSE 100 |
1.3 |
-12.8 |
-10.2 |
|
|
Topix (Japan) |
3.1 |
-9.6 |
-13.5 |
|
|
MSCI China |
-0.3 |
-25.2 |
-24.3 |
|
|
MSCI India |
1.6 |
-12.3 |
-19.7 |
|
|
MSCI Emerging Markets |
2.0 |
-15.0 |
-16.8 |
|
|
Bond Indices |
|
|
|
|
|
Citigroup Global Government |
-0.3 |
4.0 |
5.0 |
|
|
BarCap Global Corporate |
-0.4 |
0.9 |
3.0 |
|
|
Commodities |
|
|
|
|
|
SPGS Commodity Basket |
-1.4 |
-11.7 |
-9.3 |
|
|
Currency (vs US$) |
Last |
|
|
|
|
EUR Currency |
1.33 |
-1.4 |
-8.2 |
-0.3 |
|
GBP Currency |
1.55 |
-0.1 |
-3.4 |
-0.4 |
|
JPY Currency |
76.85 |
-0.6 |
5.1 |
5.6 |
|
*except for currency performance |
||||
The week ahead
Key events this week include the Malta and Slovakia votes on the EFSF enhancement measures, economic data in China and the minutes from the Federal Reserve’s last meeting when ‘Operation Twist’ was launched. Thursday’s bond auction in Italy will be closely watched to assess sentiment towards Europe’s debt crisis. Any further news from European policymakers regarding the crisis could potentially move markets. US Q3 corporate results will be monitored for any signs of slowdown at a company level. Alcoa kicks off the reporting season on Tuesday.
Monday:
US bond market closed for Columbus Day; Malta votes on EFSF
Tuesday:
EU/IMF/ECB visit Ireland to review bailout progress; Chinese money supply (Sep); UK industrial production (Aug)
Wednesday:
US Federal Reserve FOMC meeting minutes; UK unemployment (Sep)
Thursday:
Chinese trade data (Sep); US weekly jobless claims; Italian bond auctions
Friday:
G20 finance ministers meeting; Chinese inflation (Sep); Euro-zone inflation (Sep); US retail sales (Sep); US Michigan consumer sentiment (Oct); Deadline for Slovakia vote on EFSF
