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Weekly Market Commentary

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Another nail-biting week for the Eurozone as politicians dither, central bankers cower, and the public protests at the forces unleashed by the markets. Concern about governments' ability to re-pay their debt, and mounting budget deficits, spread from Greece to other countries and assets. The Bank for International Settlements estimates outstanding Greek sovereign debt at €189B, Portuguese at €240B and Spanish €851B. Ten-year Greek Treasury bonds hit an eye-watering 13.10%, 1,021 basis points over Bunds whose yield dropped to 2.905% (almost matching the record low of January 2009 at 2.856%), while benchmark Schatz set a new record low at 0.724%. Swiss ten-year Conf also dipped to a record low yield of 1.784%, joined by JGB's at 1.284% because these are seen as 'quality' issuers amid a mountain of increasingly dubious sovereign paper. Portuguese ten-year traded at a record 334 basis points over Bund and Spain at 127 matched the extreme of Q1 2009. Front June money market futures sold off as we ponder which banks in which countries hold the biggest amount of dodgy government bonds, while Dec10 ones remain well bid as the Fed repeated its intention of keeping rates low for an 'extended period'. Stock markets sold off hard Tuesday and Wednesday, many hitting their 50 or 200-day moving averages, but most then regained their composure; hardest hit Portugal and Shanghai both -4% on the week. The US dollar was mixed, losing against the Singapore dollar to 1.3640 (strongest since August 2008), while gaining to $1.3114 per Euro. Likewise Commodities with Precious Metals and the Energy group well bid while Meats sold off from extreme highs.

People, companies and countries are still divided into the 'haves' and 'have nots', regardless of current economic recovery or otherwise. Because of inflationary fears Brazil raised its key Selic rate to 9.50%, admittedly from a record low 8.75%, strengthening the real to 1.7220 per US dollar (almost this year's best level). China placed a moratorium on property companies raising capital, another measure aimed at cooling property speculation and prices, even though acknowledging this will increase the uncertainty faced by banks. Meanwhile Russia's Central Bank trimmed it key lending rate by 25 basis points to a record low 8.00% because 'the economic recovery process remains unsteady'. PM Vladimir Putin, investigating global warming in the Arctic, has another Action Man-style photo-op tagging an anaesthetised polar bear.

Underlying Themes UK Prime Ministerial hopefuls on the campaign trail studiously avoid discussing spending cuts while suggesting efficiency measures alone will close the massive budget deficit. US Senators grilling bankers who accepted proffered TARP funds try to score cheap points ahead of mid-term elections by sounding 'tough' (though not especially knowledgeable). The US Securities and Exchange Commission appoints a new compliance officer after a report found many of its employees had been watching vast amounts of pornography during office hours, even as the financial crisis was unfolding. London School of Economics supremo Howard Davies, after suggesting in February that central bankers could have done little to prevent the meltdown, this week changed his tune saying perhaps they should employ fewer academics and more people with market knowledge. Remember: these are the people who will lead us out of the black hole, and are also the ones who let it happen. Oh dear me.

Saturday 1st May Labour Day, when Eurozone finance ministers will belatedly discuss Greek aid, with holidays for many Monday, Japan Greenery Day Tuesday and Children's Day Wednesday 5th when Mauritius holds parliamentary elections followed by the UK's on Thursday. Monday US March Personal Income and Spending, Core PCE, Construction Spending, April Manufacturing ISM and Vehicle Sales late in the day. Tuesday the Reserve Bank of Australia decides on rates (some expect +25 bp to 4.50%), UK April Manufacturing PMI, March Consumer Credit, Mortgage Approvals, EZ16 PPI, US Factory Orders and Pending Home Sales. Wednesday UK April Consumer Confidence and Construction PMI, US ADP Employment and Challenger Job Cuts, Non-Manufacturing ISM and Eurozone March Retail Sales, while the Norges Bank decides on rates (probably unchanged at 1.75%) as does Iceland's Central Bank (currently 9.00%). Thursday the ECB meets and should keep rates at 1.00%, same for the Bank of England, German March Factory Orders, UK April Official Reserves, Services PMI and US Q1 Unit Labour Costs. Friday German March Industrial Production, UK April PPI, US Non-Farm Payrolls and Unemployment. Sunday state elections in North Rhine-Westphalia.

Do not hope a magic wand will sprinkle fairy dust making gaping holes disappear. Budget deficits will take a long time shrinking and will be beset by campaigns against and threats of what might happen if spending is cut on A, B, or C. The Greek tragedy will rumble on for months and the longer it does so the more it will affect the financial system; likewise legislation to clean it all up. Equity indices look a little top-heavy and top quality bonds should remain well bid as rate rises are pushed back time and time again.


The information contained in this paper is based on or derived from information generally available to the public from sources believed to be reliable. No representation or warranty is made or implied that it is accurate or complete. Any opinions expressed in this paper are subject to change without notice. This paper has been prepared solely for information purposes and if so decided, for private circulation and does not constitute any solicitation to buy or sell any instrument, or to engage in any trading strategy.


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