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Week Ahead: a health check for a ‘wobbling world’

The market exuberance that kicked in at the start of the year has given way to a more measured optimism among investors.

Week Ahead: a health check for a ‘wobbling world’

Financial aid for Greece signed off, Chinese ‘hard landing’ likely averted, UK Budget economically humdrum, US economy convalescing, even deadbeat Japan stabilising. So what’s next?

At the end of a down week for stock markets – one of the worst weeks so far in a year of big global gains – and heading into the second quarter of the year, economists and analysts the world over are again checking the pulse of a patient who has shaken off severe multiple trauma but remains on life support.

So much has improved, but plenty of big doubts remain. ‘Concerns about soft data in China, higher confidence in the US outlook, simmering wariness over Spain and elevated oil prices are all competing for airspace,’ said Gustavo Reis of Bank of America Merrill Lynch.

Not long ago the European Central Bank's market-boosting LTRO scheme, providing cheap loans for banks, would also have featured in such a list, but fears are growing that the 'LTRO elixir is lapsing', as David Page of Lloyds puts it.

This week investors were jilted out of their early spring gaiety by reminders that both the eurozone and China could yet spell doom, with continued economic weakness flagged by a dip in both euro area and Chinese purchasing managers’ indices. So activity remains stifled. Economists at ING interpreted the data as suggesting that the global economy ‘may be having another wobble’.

For China, the news comes on top of premier Wen Jiabao’s 7.5% economic growth prediction, probably the pronouncement that has most rattled markets so far this year. Atypical political wrangling in the world’s second-largest economy, ahead of a leadership transition, has added another layer of uncertainty for skittish investors. But still, even the most bearish of economists have gone quiet on that dreaded ‘hard landing’ scenario.

Fresh doubts in any corner of the world economy will inevitably re-ignite ‘what if?’ questions about the eurozone this year. Analysts at Investec note that deeply indebted Greece still faces ‘herculean’ challenges, and Spain’s struggle with its debt and high unemployment is a growing source of concern. The focus of European finance ministers beginning a two-day meeting on Friday, though, is expected to be on fine-tuning broader eurozone rescue measures. Perhaps it will take the forthcoming elections in Greece and France to provide a serious shift in sentiment towards the still-struggling region.

In the US, where sentiment remains cheery, economists continue to question whether the jobs market can remain resilient. But as elsewhere, there is the continued threat of rising oil prices, and hence higher gasoline prices for the all-important American consumer. In the coming week, manufacturing surveys and numbers on durable goods orders will be published for the US, providing further clues as to the state of the nation. In addition, Federal Reserve chairman Ben Bernanke will deliver a string of talks, providing economists with some semantic nuance to crunch in with the numbers.

In the UK, this week we’ll likely get confirmation that the economy shrank by 0.2% in the final quarter of 2011, with a weak retail sales report the greatest threat to an otherwise improving outlook for the first quarter of this year. A sentiment-sapping double-dip recession seems at least to be unlikely.

This lack of an overriding narrative to guide investors means 'attention has become diffused’, according to Reis. Yet he and his colleagues at Bank of America Merrill Lynch, he says, are cautiously optimistic – and that would seem to sum up the consensus among City mouthpieces. 

FTSE Diary

The corporate week will get off to a quiet start, with no blue chips due to report on Monday.

On Tuesday a motley group of Wolseley (WOS.L), Resolution (RSL.L), Kazakhmys (KAZ.L), Compass Group (CPG.L) are all due to report numbers.

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7 comments so far. Why not have your say?

Ramsey J

Mar 25, 2012 at 11:04

Same tired arguments that regularly make the rounds. Some writers in this industry make these doom and gloom predictions from time to time when they are also publishing good prospects. This way they hedge their bets and whatever happens in the months ahead they can claim they've forecast it and thus score a few brownie points.

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Truffle Hunter

Mar 25, 2012 at 11:19

Here is some news that will not be reported or commented on by the usual hacks:

Tungsten-Filled 1 Kilo Gold Bar Found In The UK

The last time a story of Tungsten-filled gold appeared on the scene was just two years ago, and involved a 500 gram bar of gold full of tungsten, at the W.C. Heraeus foundry, the world's largest metal refiner and fabricator. It also became known that said "gold" bar originated from an unnamed bank. It is now time to rekindle the Tungsten Spirits with a report from ABC Bullion of Australia, which provides photographic evidence of a new gold bar that has been drilled out and filled with tungsten rods, this time not in Germany but in an unnamed city in the UK, where it was intercepted by a scrap metals dealer, and was supplied with its original certificate. The reason the bar attracted attention is that it was 2 grams underweight. Upon cropping it was uncovered that about 30-40% of the bar weight was tungsten. So two documented incidents in two years: isolated? Or indication of the same phenomonenon of precious metal debasement that marked the declining phase of the Roman empire. Only then it was relatively public for anyone who cared to find out on their own. Now, with the bulk of popular physical gold held in top secret, private warehouses around the world, where it allegedly backs the balance sheets of the world's central banks, yet nobody can confirm its existence, nor audit the actual gold content, it is understandable why increasingly more are wondering: just how much gold is there? And alongside that - while gold, (or is it GLD?), can be rehypothecated, can one do the same with tungsten?

With thanks to Zero Hedge

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Mar 25, 2012 at 11:21

“….simmering wariness over Spain…..” Can anyone tell me why there are huge demonstrations almost every week over the actions of La Caxia, which recently changed its name to Caixabank? It appears that the natives are restless……..

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Truffle Hunter

Mar 25, 2012 at 12:16

Oh dear some more bank runs? How long before the Euro area shrinks? According to the Bank for International Settlements total Portuguese debts amount to 479% of GDP ( Greece was 296%). A lot of the private debt is owed to Spanish banks. Spanish banks are fragile at best - can they afford the write downs??

If the natives are getting restless, perhaps they are doing as the wealthier Greeks did - emptying their pockets of Spanish Euros and buying pieces of eight?

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Mar 25, 2012 at 13:16

I’ve just asked a friend in Barcelona and it seems that, far from “emptying their pockets”, the protestors are saying La Caixa ‘tricked them’ into buying bonds which have a maturity date of 999 years! Her 79 year-old mother has 40,000 euros with La Caixa and they are refusing to admit mis-selling her the bonds.

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Truffle Hunter

Mar 25, 2012 at 14:42

Poor folk. Those Caixas are a real festering problem. This one has decided to make it's demand deposits into perpetual capital in order to prevent a bank run! Unbelievable. It wont be long before the Spanish people start preserving their savings in pieces of eight.

Monetary and economic conditions have never been more favourable for the type of money that holds it's value over millenia.

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Mike kemp via mobile

Mar 27, 2012 at 12:54

Am I the only one who finds it difficult to comment as I can hardly ever read both pass words!

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