Market Insight for the Week Ended 23 Nov
By Bryn Griffiths (CEO, Edge Capital Markets)
Equities
Global equities saw a significant reversal this week, to those recently, where strong inflows saw some exchanges jump
over 5% for what was a holiday ridden week in the financial markets. Improving economic figures were the catalyst to
this despite the issues of the fiscal cliff, Greece’s looming debt payment and the inability of the 17 euro regions
Finance Ministers being able to agree on the EU’s next seven year budget still remaining unresolved. In the US, there
was an improving tone to the housing market with a better than expected data release in Oct existing home sales (4.79m
vs. 4.76m), Oct NAHB Housing Market Index (46 vs. 41) and housing starts 0.89m vs. 0.84m. It is important to note that
the NAHB Housing market index printed the best figure since May 06 and the housing starts number was the best since Sept
08. These positive releases were supported later in the week with lower then expected unemployment claims (410k vs.
415k) and higher then Flash Manufacturing PMI (52.4 vs. 51.2). The equity markets were also given support from a set of
European manufacturing and service figures that indicated that although not expanding the rate of decline was falling.
Investors were also heartened by the HSBC Chinese Manufacturing data release that showed the country’s printed it’s
first expansionary number since Nov 11. To cap of the week’s positive releases was the release of the German Ifo
Business Climate numbers on Friday where the market happily got a print of 101.4 vs. and expected 99.6. The Japanese
market continued its recent climb with another 3.8% added to the index. This has risen over 5% in the last 4 weeks on
expectation there will be a change in government shortly that will see massive stimulus to attempt (again) to invigorate
the Japanese economy. Investor’s fear levels fell indicated by a lower CBOE Volatility Index (VIX). This has now fallen
11.9% in the last 4 weeks.
Weekly Moves: Australia 200 +1.8%, Hong Kong +3.6%, Japan +3.8%, China +0.7%, France +5.6%, Germany +5.0%, UK +3.8%, Dow
Jones +3.3%, S +3.7%, Nasdaq +4.2%
Currencies
The US dollar saw outflows this week with the US Dollar index closing down 1.3%. This was despite a continued strong
USDJPY which has moved up 5.6% in the last 8 weeks. The Japanese yen continues to loose value against all its major
trading currencies with the EURJPY having its biggest gain in 9 months. A perfect blend of expected Japanese stimulus,
optimism on a Greek deal and better than expected Business Climate figures out of Germany has seen a move from 100 to
107 in the last 2 weeks. Clearly we are in the midst of a risk-on period. Commodity currencies gained over the week on
an improving global economic landscape but more importantly a once again expanding Chinese Manufacturing sector which
improved from 49.5 to 50.4 last month. A figure over 50 is an indication the sector is growing.
Weekly Moves: AUDUSD +1.1%, GBPUSD +0.9%, EURUSD +1.9%, NZDUSD +1.3%, USDCAD -0.9%, USDJPY +1.3%, USDCHF -0.8%
Interest Rates
This week saw outflows from the global bond markets as investors appetite for risk improved following a run of good
economic numbers from all 4 corners of the globe as well as improved expectation on both a solution to the fiscal cliff
issues and a Greek settlement to cover the next round of interest payments. A comment early in the week by the Federal
Reserve Chairman indicating that a resolution to the fiscal cliff would likely remove an impediment to US growth next
year. Investors clearly feel this issue will get resolved before it hits the economy full force. Investors were also
encouraged by a cease fire agreement being reached between Israeli and Hamas leaders following a week of conflict.
3m 5y 10yr 30yr
US 0.10% (+0.02%) 0.69% (+0.08%) 1.69% (+0.11%) 2.83% (+0.10%)
UK 0.44% (+0.00%) 0.85% (+0.10%) 1.84% (+0.09%) 3.09% (+0.07%)
Germany -0.07% (-0.05%) 0.44% (+0.09%) 1.44% (+0.11%) 2.36% (+0.11%)
Japan 0.11% (+0.00%) 0.19% (+0.01%) 0.74% (+0.01%) 1.95% (-0.01%)
Australia 3.11% (-0.02%) 2.78% (+0.20%) 3.30% (+0.27%)
Metals
Precious Metals saw strong inflows with both Gold and Silver closing the week on their highs. A weaker USD and also an
improving forward looking economic landscape has seen a week where investors have been very comfortable in adding risk
to their portfolios. Technically gold closed the week above its recent ceiling of US$1740/oz. Bloomberg released the
holdings of gold backed exchange traded products this week indicating they had reached a record of 2605 metric tons. For
those not aware a metric ton of gold = 35,274oz. The improving manufacturing sector in China confirmed this week by the
HSBC Manufacturing PMI printing 50.4 vs 49.5 last month (where a number above 50 is expansionary) saw investor move
funds into copper for the first time in 3 weeks.
Weekly Moves: Gold +2.2%, Silver +5.7%, Copper +2.2%.
ends