16.03.12 Friday Morning

It is a rare week when the eurozone and Greece in particular are not the focus of traders and economists thought. However, this week the emphasis was on America as the S&P500 closed above the 1400 mark for the first time since June 2008; 3 months prior to the beginning of the financial meltdown. Market attention centred around the Federal Reserve after they indicated that no new stimulus measures would be issued with gold prices hitting a two month low on Wednesday as a result. The Bernanke effect was seen across the metals board with silver falling to a seven week low with the strengthening dollar putting downward pressure on the precious metals market.

The US has experienced a robust six month period of job growth, however, unemployment levels remain stagnant at 8.3% which has resulted in Bernanke persisting with his plan to keep interest rates at close to zero through to the end of 2014. Nevertheless, if treasury yields continue to climb as the economy strengthens then the Fed may be forced to reconsider raising the benchmark rate before this time. Additional easing also remains on the policy table, even after these upgraded views, as concerns remain with America still in a difficult position. Economic figures out this week though aided in brightening the outlook; retail sales, PPI data and the Philly Fed manufacturing data were positive and released as forecast. The main boost though came from TIC long term purchases, a figure which represents the balance of domestic and foreign investment, which disclosed a far outreaching figure than expected. Such a strong number shows that foreigners are more interested in purchasing US stocks and bonds than the US is in purchasing foreign stock expressing that the US market is strengthening.

In Asia, China reported their largest trade deficit in 22 years whilst India cut their reserve ratio to 4.75% form 5.5% showing that after years of excessive expansion maybe things are starting to slow down in the Far-East. Japan continues to battle the yen which has fallen to an 11 month low helping to boost the nikkei. The Bank of Japan has reiterated that they will continue to fight economy deflation and will keep rates and stimulus on hold for the time being.

As metals fell the price of oil continued to surge. However, with the US and UK agreeing to an emergency stock release and the Saudi Oil Minister stating that there is ample production it will interesting to see if this bulge in price continues or if it subsides over the coming weeks.

In Europe stocks kept with trend and continued to rise as the Greek debt swap was deemed more successful than expected and the final approval for aid was given to them from EU finance ministers. Draghi stated that we are continuing to see signs of stabilisation of the Eurozone economy whilst the Luxembourg financial minister sees the immediate problem switching to Spain with their deficit reduction likely to be below 3% for 2013. Schaeuble, the German minister has reiterated that there will be no leniency with Spain and that they must reach the 3% mark. German economic sentiment far exceeded expectations and gave the foremost lift to the markets as European stocks rallied and the Euro strengthened off the back.

In equities the results of the central bank test showed that banks have raised profits. However, four banks, one of them Citigroup, failed the stress test, because their proposed capital plan was rejected. Goldman Sachs was hit with a £1.3 billion backlash following the resignation of banker Greg Smith who cited the ‘toxic’ environment in his reasons. In his resignation letter he stated that staff referred to clients as ‘Muppets’ and blamed top bosses for the ‘decline in the firm’s moral fibre’.

Results published from the FTSE were on the whole positive with Legal and General announcing operating profit of £1.8 billion and a raised dividend whilst Yule Catto saw pre-tax profit up 99% and Antofagasta saw earnings up 32%. Tullow Oil reported 2011 operating profit up 332% with pre-tax up 499% and announced that their 4A appraisal well off Ghana was successful with stock value was up 58 points Friday. HMV say that there is an on-going business review and confirmed a number of parties are showing interest in the acquiring the business.

See our Economic Diary here.