24.02.12 Friday Morning

Aside from Greece it was mixed news for the rest of Europe with the EU’s Rehn stating that the Euro area has entered a mild recession whilst the Euro strengthened against the Dollar off the back of the Greece deal. European consumer sentiment remained pessimistic but at a constant level whilst French and German Industry figures revealed that manufacturing and services are expanding but at a minimal rate. German final GDP figures for the quarter echoed the sentiments of consumer confidence with their economy shrinking 0.2% although the IFO economist Abberger does not see Germany slipping into a recession for now. The IFO German business climate figure was stronger than expected at 109.7. Data from the UK was mixed with public sector net borrowing producing a larger than expected surplus. However, revised GDP confirmed the economy shrank 0.2% last quarter and with the worry of a recession lingering over the country seven out of the nine MPC members voted in favour of a £50 billion QE boost. 

 The focus away from Europe centred on Asia and the Middle East with oil the hot topic. Iran halted oil sales to the UK and France as tension continues to grow dampening the growth outlook. The MSCI Asia has continued to expand as energy stocks continue to rise off the back of this increase in price with Brent hitting recent highs and reported to be heading towards the $112 a barrel level which bodes well for currencies such as the Canadian Dollar. Gold’s value also surged over 2.5% with an $8 jump witnessed Tuesday afternoon. It would appear that traders are hedging their increasingly valued equity positions with the precious metal. China and Japan were noisy with the latter’s trade deficit hitting a record high in January as the Yen continued to strengthen. The Japanese PM Noda stated that their government will strengthen co-operation with the BOJ in the battle against deflation and the strong Yen, which has since weakened to its lowest level; against the Dollar since last July helping to boost exports. China revealed that it would consider more involvement in the EU debt crisis but has problems of its own as both imports and exports reduced in January and manufacturing was seen to contract in the same period.

It was  a busy reporting week for UK equities with the two major banks, RBS and Lloyds both reporting substantial pre-tax losses, due mainly to underwriting Greek debt and the repayment of Payment Protection Insurance. RBS announced a loss of £1.98bln whilst Lloyds a £3.54bln. It seems unlikely that the tax payer will be seeing any return from the two for a long period following these results. Once again mining stocks continued to expand the FTSE AIM index. Cove Energy jumped 33% to 198p after reports that Royal Dutch Shell is to make a bid of 195p a share. The company also announced continued drilling success offshore Mozambique. Rio Tinto announced a $518mln investment in autonomous trains for their Pilbara project and the discovery of a 12.76-carat pink diamond in their argyle mine in Western Australia. AMEC revealed that their strong performance from 2010 continued into 2011 with revenue up 11% and a rise in dividends whilst BAA, Rexam, Barratt Developments, Redrow and BAT all reported good figures for the previous year.

The Dow Jones continued its steady growth surpassing the 13000 level for the first time since May 2008. However on the reporting front it was quiet with both Hewlett Packard and Wal-Mart reporting disappointing earnings. However unemployment claims continued to decrease, down to 350,000 and Obama announced that he will propose cutting the corporate tax rate to 28% from 35% with a special rate of 25% for manufacturers aimed at further stimulating the economy.