Past week saw quite some action both from Europe and the US. The crucial ESM package essential for ECB President Draghi to go ahead with his “bazooka” finally got the approval from the German constitutional court in Karlsruhe, paving way for the ECB to begin its unlimited bond purchase program. Overall, equity indices across the world closed in the positive and better than the previous week.
Likewise, from the US, Ben Bernanke announced a similar plan for the Federal Reserve to up its ante to purchase $40 billion worth of mortgage backed securities or MBS every month until the US economy sees signs of recovery, well into 2015.
The FTSE100 along with other major indices were in a state of flux in anticipation for the above two announcements. The FTSE100 started the week with uncertainty in the markets looming large.
FTSE kicked off the week, tracking the falls from Wall Street as well as the Asian markets which closed lower with uncertainty from the German courts. From the stocks, RBS shares climbed more than 4% while Burberry saw stocks decline by over 20%.
As the German court ruling came out in favour of the ESM, it didn’t do much to boost the FTSE, which saw the index to drop as investor focus shifted to the US and the long anticipated QE3. From within the country, there was positive news from the job market, with July unemployment rate showing a decline, coming in at 8.1%. The UK trade deficit data for July was also released last week showing better than expected, improved numbers.
Tuesday’s big news was also the rumours of BAE and EADS merger which prompted BAE shares to rise more than 10% while EADS stocks plunged. As the week progressed, BAE systems saw its stocks decline as well by well over 7% as there were many legal hurdles that had to be cleared with the possibility of a political intervention as well.
From the financial services sector, in an unprecedented move, the UK government advertised the post of the BoE Governor when Sir Mervyn King’s tenure comes to an end in June 2013. HSBC announced the departure of Joe Garner, in a bid to shake up its top management. The above developments are being seen as part of the banking reforms in the UK whose image has taken a beating since being embroiled in one scandal after another.
The markets closed on an optimistic note on Friday with Bernanke’s QE3 along with news from within the UK about the revised construction output in July which was stronger by 2.2% yet weak by 10% for the year into July 2012. It was also estimated that the above revisions could improve the UK’s GDP along with the revenue from Olympic and Paralympic ticket sales adding to a better GDP figure.
Foreign investment in the UK also got a shot in the arm with Huawei announcing plans to invest £1.2 billion over a 5 year period. Amazon Inc. also announced the opening of a new research center in the UK. Technology sector contributes to around 11% to the country’s GDP.
Other big news during the week was the US Treasury selling $18 billion of AIG stocks, which it rescued during the 2008 financial crisis, with AIG itself buying up $5 billion worth of stocks.
|Indices at a glance|
|FTSE 100 Index||5915.55 (1.64%)|
|German DAX||7412.13 (1.39%)|
|CAC 40||3581.58 (2.27%)|
|Dutch AEX||338.28 (1.10%)|
|NIKKEI 225||9159.39 (1.83%)|
|Hang Seng||20629.78 (2.90%)|
|Shanghai Composite||2315.54 (0.74%)|
|NASDAQ Composite||3183.95 (0.89%)|
|Dow Jones Industrials||13593.37 (0.40%)|
Key events for the UK for the week ahead – September 17 – 21
18/09/2012 – Consumer Price Inflation: On the economic front, the Consumer Price Inflation data will be closely watched. July’s CPI saw an unusual spike of 2.6%. August data is being expected to be much lesser, perhaps a retrace of the July’s inflation rise. A 2.3% CPI figure is what the markets will be looking at.
19/09/2012 – September MPC Minutes: The Monetary Policy Committee minutes will be released with the expectations that the MPC members are more likely to watch the economic situation before making any substantial policy changes. In November 2012, the BoE’s asset purchase program of £375 billion will come to an end. There is a bit of anticipation that the BoE could deliver another £50 billion in quantitative easing during Q4 of 2012 which could essentially make the total investment to £425 billion.
20/09/2012 – BRC Retail Sales Volume: The British Retail Consortium will be publishing their survey details on the retail sales volume with month on month figure showing a steady rise. 0.3% in July and 0.8% in August. However, the total value of sales has only moved up 1.6% in the year with April being the slowest month so far.
21/09/2012 – Public Sector Borrowing: Focus will shift to the public sector borrowing in August. July’s PSNB (Public Sector Net Borrowing) data was poor with a £0.6 billion deficit compared to the £2.8 billion surplus in July last year. Weak tax revenues during the month of July with inflows down by 0.8% for the year will make it difficult for Chancellor Osborne to meet the 2012/2013 fiscal targets.