Austerity keeping

Growth at Bay!

Three years after the realisation that certain countries in the European Union had fiscal balances that were unsustainable, a lack of economic growth has caused many to question whether austerity was theright medicine to cure the ills of the region’s most indebted nations. While reducing spending is an important step towards fiscal balance, European authorities are beginning to acknowledge that it may be ineffective to do so at the expense of economic growth.

In 2010 the Troika, of the European Commission, ECB and the IMF, provided funding to help certain countries including Spain & Italy to avoid default. This assistance came with the stipulation that governments would impose strict austerity measures in an effort to curb government spending. Three years on, the European public has expressed its discontent with austerity, with protests staged across the region, and policymakers are recognising that austerity alone is unlikely to lead Europe out of recession.

While it will take time for Europe to emerge from recession, the European equity market should continue to provide attractive investment opportunities. The ECB’s monetary policy is likely to remain accommodative, and many European companies have global revenue streams, allowing them to continue generating revenue despite weak domestic growth. European equities are attractively valued and, on average, pay higher dividends than other developed companies, particularly in the US.

STERLING AGAINST THE EURO

The Battle Continues in 2013 

One common question is to comment on currency FX and what we see ahead for sterling in particular.

So far this year sterling has fallen against the euro from the turn of the year at 1.22 dropping to 1.14 before Easter to be sitting now around the 1.18 mark.

The value of these two currencies will vary depending on market confidence behind the strength or perceived weakness of the UK and European economies.

In Europe, economic confidence is low, interest rates have dropped again and comments from the European Central Bank suggesting that negative interest rates are not inconceivable in an aid to boost the Eurozone economy have seen the euro falter.

In contrast a recent pick up in the UK economy has lessened the chance of further monetary easing and asset purchases in the near term by the Bank of England leading to strength behind the economy and the currency itself.

We would suggest caution during 2013 over which currency will prove the stronger and that any individual investing for income and looking for better returns should take practical, professional advice before making any decisions.

We will continue to update you in our regular feature on Foreign Currency.

Weekly Market Summary

by Raymond Chatlani

On Monday, Asian stockmarkets with investors still nervous despite the formation of a new Greek unity government intent on avoiding imminent debt default. European markets fell as concerns shifted to Italy and whether Rome can avoid being dragged further into the euro zone debt crisis as Italian bond yields spiked to a record. Wall Street rose as European finance officials agreed to release the next slice of bailout money to Greece as long as leaders of the parties agree in writing to carry out austerity measures required by international lenders.

On Tuesday, Asian markets wiped earlier gains and fell, weighed by concerns that surging bond yields could stifle debt-ridden Italy's fund raising ability and throw the euro zone deeper into financial turmoil, while Greece struggled to pick a new leader. European stockmarkets and Wall Street rose on Italian reform hopes as Italian Prime Minister Silvio Berlusconi's resignation gave hope for a clearer path to solving the euro zone debt crisis.


On Wednesday, Asian stockmarkets rose bolstered by easing inflation in China and the euro steadied after Italian Prime Minister Silvio Berlusconi said he would resign after parliament approves a budget law that includes reforms demanded by Europe, raising hopes the debt-ridden country would proceed with reforms to contain the euro zone's sovereign debt crisis from spreading. China's annual inflation rate eased to 5.5 percent in October from 6.1 percent in September for a third straight month of decline from July's three-year peak and Premier Wen Jiabao said prices had fallen further since then. Chinese producer prices rose 5 percent in the year through October, down from a 6.5 percent rise in the year to September. European markets slumped on worries that Italy is too big to bail-out as italian bond yields surged to over 7 percent which is considered to be unsustainable. US indices fell sharply as the Eurozone debt crisis escalated.

On Thursday, Asian markets fell after soaring Italian borrowing costs stoked fears that the euro zone's third biggest economy will be forced to seek a bailout, overwhelming the bloc's finances and raising the risk of a break-up of the currency area. Most European stockmarkets fell although there was a pullback in Italian bond yields below 7 percent to 6.9 percent. Strategists said further European Central Bank buying of Italian bonds helped push down yields. Wall street rose on Italy's successful bond auction and the appointment of a new leader in Greece. Lucas Papademos, a respected former vice-president of the European Central Bank, was appointed as the new Greek interim prime minister.

On Friday, Asian stockmarkets rebounded modestly after brighter corporate news lifted U.S. stocks and debt-ladened Italy was able to fund itself at a bond auction and the naming of a new leader in Greece. European indices and US markets rose following news that the Italian parliament may well vote this same weekend on an austerity bill and that a new government may even be announced as early as this next Sunday. In fact, the country's Senate has just approved that piece of legislation and tomorrow will come the turn of the lower house.


This morning, Asian stockmarkets and the euro rose on Monday on hopes that new leaders in Italy and Greece will take decisive action to save their indebted nations from bankruptcy and fend off a wider financial meltdown in the euro zone.

Last week, global equities and commodities fell throughout the week but recovered on Friday. The markets were very volatile as the Italian and Greek governments fell and havre now been replaced with temporary coalition governments who are expected to pass the austerity measures demanded by the EU for aid to continue. In fact, Italian 10-year bond yields soared above 7 percent last week to levels seen as unsustainable. Borrowing costs of more than 7 percent have previously driven Greece, Ireland and Portugal to seek bailouts.

Investors expect the leading European benchmark indexes to rise today, extending the previous session's rally as investors bet new leaders in Italy and Greece will speed up reforms to tackle the two countries' debt problems.

Following Italian Prime Minister Silvio Berlusconi's resignation, the country's president Giorgio Napolitano asked former European Commissioner Mario Monti on Sunday to form a government to restore market confidence, and Monday's bond auction will be seen as an initial judgment on his leadership. Italy is issuing a Euro 3 Billion five year bond today which will probably be fully taken up but at rates which are expected to be above six percent.
In Greece, the new Prime Minister Lucas Papademos -- a former central banker who oversaw his country's entry to the euro zone in 2002 -- will have to win Wednesday's confidence vote in his cabinet before meeting euro zone finance ministers in Brussels on Thursday, state television reported.

The markets should continue to be volatile this week as we wait the outcome of Italian and Greek actions

Weekly Market Summary

by Raymond Chatlani

On Monday, Asian stockmarkets fell as the dollar spiked to a three-month high against the yen following Japan's intervention, prompting investors to book profits after last week's rally. European and US markets also fell after the Japanese government intervened overnight to cap a rising yen and as doubts grew about a deal to tackle the European debt crisis.
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On Tuesday, Asian markets fell on renewed worries about a slow progress in resolving the euro zone's debt crisis and a firmer dollar dampened investor appetite for risk. Also, China's official purchasing managers' index (PMI) fell to 50.4 in October from 51.2 in September, countering expectations for a rise. The National Bureau of Statistics blamed the drop on weak European and U.S. economies. European and US stockmarkets fell heavily on worries that a planned Greek referendum could scuttle a plan to resolve Europe's debt crisis.

On Thursday, Asian shares, the euro, commodities and the Australian dollar all fell as fears that Europe's debt crisis could unleash financial chaos prompted investors to shed riskier assets in favour of the relative safety of the dollar. European and US stockmarkets rose as Greece's government backed away from a proposed referendum on staying in the euro and a rate cut from the European Central Bank raised hopes for an easing of the region's debt crisis. The ECB cut the base rate by 0.25% to 1.25%.


On Friday, Asian stockmarkets rose and the euro steadied on hopes that Greece will abandon a proposed referendum over a euro-zone bailout but investors remained cautious over a confidence vote later in the day in the Greek parliament. European and US markets fell as richer nations appeared to back away from a European Union plan to broaden funding for a euro zone bailout fund. Also, Italian bond yields spiked higher hitting record highs of around 6.4 percent, expanding the spread of Italian 10-year yields over Bunds to a new lifetime high.

This morning, Asian stockmarkets with investors still nervous despite the formation of a new Greek unity government intent on avoiding imminent debt default.
Last week, global equities and commodities fell except for gold and oil which appreciated slightly as concerns grew over the details of a coalition deal by Greece and Italy's rising borrowing costs. The market is still filled with too many uncertainties for prices to stabilise. The rollercoaster movement of base metal prices is a sign of directionless trading. Investors are waiting to see what happens next with the euro zone crisis and China's credit situation.

Greek Prime Minister George Papandreou and opposition leader Antonis Samaras agreed on a new coalition government to approve the bailout plan, which requires painful fiscal reform, before elections. People are waiting for the situation to play out in Europe. Right now they are unwilling to put too many bets in either equities or commodities as investors remain unsure whether Greece will be able to work itself out of a debt crisis despite a weekend deal by the country's leaders aimed at implementing a controversial austerity program.

Also, a critical Italian parliament vote on Tuesday to debate austerity cuts has become a test of Prime Minister Berlusconi's government, with the opposition also preparing a motion of no confidence in the leader. The uncertainty in Rome eclipsed a political cross-party deal in Greece to approve the terms of its international bailout, although it was still short on detail.

The Greek debt crisis and the political uncertainty in Italy will continue to drive markets this week.

Weekly Market Summary

by Raymond Chatlani

On Monday, Asian stockmarkets rocketed higher, buoyed by hopes of progress in resolving Europe's debt crisis and positive export figures from Japan that point toward a recovery from a devastating tsunami earlier this year. Japan's Finance Ministry said Monday that exports rose 2.4 percent in September compared with a year earlier, marking the second consecutive month of growth. European and US markets rose after European leaders achieved some progress in talks to fix the region's finances and as strong earnings from Caterpillar boosted investor sentiment.

On Tuesday, Asian stockmarkets mostly rose following Wall Street's performance last night. European markets fell after the cancellation of a meeting of European finance ministers raised doubts that an upcoming summit will result in a clear plan to rein in Europe's debt crisis. US markets fell after data showed consumer confidence tumbled to its lowest level since March 2009.

On Wednesday, Asian markets rose modestly as markets waited for news of whether a concrete plan to tackle the eurozone's debt crisis will emerge at an EU summit later today. European markets closed modestly lower as investors waited for the outcome of the EU summit. US stockmarkets rallied as Eurozone leaders sealed a three-part deal, which they hoped would convince markets that they have an effective response to the growing economic crisis.
Officials in Brussels said an accord had been reached with banks on a 50% write-off of 100bn euro of Greek debt and that banks would seek 106 Billion Euro to recapitalise their balance sheets. It was also agreed on Wednesday to increase the 440bn euro bailout fund, perhaps to over 1trn euro. This would help protect larger economies such as Italy and Spain from the market turmoil that has already pushed three countries to need bailouts.

On Thursday, Asian stockmarkets rose following the EU rescue plan. European markets exploded higher on the Eurozone debt agreement. Wall Street rose on strong volume followed the EU debt resolution programme.

On Friday, Asian markets rose having one of their best weeks in nearly three years after a long-awaited plan to resolve the European debt crisis sparked a huge relief rally in riskier assets. European and US stockmarkets closed flat after a strong rally on a long-awaited euro zone rescue deal, but a weak sale of Italian bonds showed investor confidence in the agreement was shaky.

This morning, Asian stockmarkets fell as the dollar spiked to a three-month high against the yen following Japan's intervention, prompting investors to book profits after last week's rally.

Last week, global equities and commodities surged as investors cheered an EU rescue plan to resolve the Eurozone's debt crisis. This three part rescue plan consists of private banks agreeing to accept a write-off of 50% on Greek bonds, seek 106 Billion Euro to recapitalise their balance sheets and that the the European Financial and Stability Fund would be boosted to 1 Trillion Euro from 440 Billion Euro. A report Thursday showed that the U.S. economy expanded at a solid 2.5 annual rate in the July-September quarter. That helped ease concerns that another recession might be nearing.

This week, traders will be cautious ahead of the Group of 20 leaders' meeting later on Thursday that will focus largely on the European debt crisis. Also, the markets are waiting for further details on the EU rescue plan and its implementation.

Also, this week, investors will shift their focus to U.S. economic data, which might temper their exuberance. Three events this week will command attention: the U.S. jobs report for October, the Federal Reserve's policy meeting and Fed Chairman Ben Bernanke's quarterly news conference

Weekly Market Summary

by Raymond Chatlani

This morning, Asian markets rose amid hopes that a crucial week for the euro zone crisis will see policymakers finally come up with a plan to resolve the region's debt woes and recapitalize its banks. European stockmarkets and Wall Street stocks fell as Germany's finance minister Wolfgang Schaeuble said a forthcoming summit would not yield a definitive solution to Europe's debt crisis.

On Tuesday, Asian stockmarkets fell after Germany's finance minister cautioned against hopes for a quick fix to Europe's debt problem, and news that China's economic growth slowed a tad in the third quarter added to concerns. China’s statistics bureau said the economy grew at 9.1 percent in the third quarter, less than predicted. European markets fell on Moody's warning that it may review France's credit rating and as growth in China slowed. Wall Street rose on strong bank earnings.

On Wednesday, Asian stockmarkets rose but gains were capped after Moody's Investors Service cut Spain's sovereign ratings by two notches, adding to uncertainty over the euro zone's debt crisis and economic growth. European markets rose on optimism policymakers will take major steps at a summit this weekend to solve the festering debt crisis and offsetting the impact from a cut to Spain's sovereign credit rating. U.S. stocks fell and the euro edged lower after optimism faded that European leaders will make substantial progress on resolving the euro zone debt crisis at their summit meeting this weekend.


On Thursday, Asian and European stockmarkets slumped with investors growing wary about taking risks ahead of a key European leaders' summit on Sunday. US markets rose as jobless claims fell last week and after France and Germany said they would press ahead to solve the euro zone debt crisis, despite setbacks that meant the details might not be settled at a weekend European Union summit.
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On Friday, Asian markets closed mixed and the euro clung to overnight gains as markets largely stayed within range, and as investors awaited a weekend meeting of European leaders for signs of progress in resolving the region's debt crisis. European stockmarkets rose as members of Germany's Merkel's government repeatedly stressed Europe's two biggest economies were in agreement on the broad outlines of a deal. US indices rose after a round of solid corporate earnings reports as industrial giant General Electric Co. said that its third-quarter net income rose 18 percent.

This morning, Asian stockmarkets rocketed higher, buoyed by hopes of progress in resolving Europe's debt crisis and positive export figures from Japan that point toward a recovery from a devastating tsunami earlier this year. Japan's Finance Ministry said Monday that exports rose 2.4 percent in September compared with a year earlier, marking the second consecutive month of growth.

Last week, global equities and commodities rose in volatile conditions as investors bet that European leaders in crucial meetings over the next few days will move forward in resolving the euro zone's two-year-old debt crisis. European leaders are to meet Wednesday to hammer out a concrete resolution to the region's debt problems, including ways to fortify the euro 440 billion ($600 billion) bailout fund to help prevent larger economies that use the euro common currency, such as Italy, from being dragged into the crisis.
Weeks of intensive discussions by European leaders have so far failed to produce a decisive outcome. At the end of the day, the market is nervous, waiting to see anything substantial coming out of the summit. We are getting to a point that there have been so many false promises that they really need to deliver something big. We can expect this volatility to continue over the next two days until details emerge of the outcome from the summit next Wednesday.

Weekly Market Summary

by Raymond Chatlani

On Monday, Global markets continued to fall on fears that a Greek default is imminent. Greece reported that the deficit for this year would be 8.5 percent which is above the expected target of 7.6 percent. it was explained that this was due to a 5.5 percent contraction in GDP.

On Tuesday, Asian stockmarkets continued their falls on growing doubts over Greece's ability to avoid default that fuelled fears of global financial turmoil and recession. European markets fell on increased worries about a major banking crisis in Europe and expectations that Greece would default soon. A late rally in U.S. stocks pulled Wall Street out of bear market territory on Tuesday, and the euro rose versus the dollar after Federal Reserve Chairman Ben Bernanke promised more economic stimulus if needed.

On Wednesday, Asian markets trimmed earlier gains as traders wait to see if Bernanke will definitely provide economic stimulus. U.S. and European stock markets traded higher amid reports monetary officials in Europe are working to shore up the weak European banking sector, in case Greece should actually default on its debt obligations in the near term.

On Thursday, Asian stockmarkets followed global stocks higher, buoyed by a recovery across a broad range of assets on optimism over Europe's efforts to aid the region's financial sector and U.S. data suggesting the economy could avoid recession. European and US markets rose as Europe moved closer to pumping aid to the region's troubled banks and U.S. jobless benefit claims rose less than expected last week. The European Central Bank (ECB) announced aggressive liquidity measures on Thursday, throwing a lifeline to lenders who have seen wholesale funding drying up as market confidence ebbed. The European Central Bank said it was ready to buy bonds to provide longer-term cheap money for European lenders in need of funding.


On Friday, Asian markets rose for a third day following the ECB's agressive moves to provide liquidity to financial institutions. European stockmarkets rose on good US jobs data. Wall street fell after a ratings downgrades of Spain and Italy buffeted markets.

This morning, Asian stockmarkets closed mostly higher except for China and Hong Kong as on Sunday, French President Sarkozy and German Chancellor Merkel agreed a package of measures to help stabilise the eurozone by the end of the month.

Last week global markets and commodities rose modestly supported by assurances from the Federal Reserve that more economic stimulus would be provided if needed, promises by EU officials that European banks would be recapitalized to help deal with a potential debt default by Greece and yesterday's agreement between France and Germany to allow additional measures to stabilise the Eurozone by the end of the month.

As in previous weeks, we are still only seeing rhetoric by global officials without concrete action being taken. While short term action by the ECB to provide liquidity will ease the anxiety of the market for now, this present volatility is expected to continue until additional monetary policy measures are actually implemented later on this month.