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Broadgate: Weekly Briefing 11/5

11 May 2012

China – China has reported a trade surplus that is almost double industry expectations as domestic demand slows.

Exports climbed by 4.9percent, while imports grew by just 0.4percent, down from the 5.3percent growth recorded in March. The latest results represent the second consecutive month whereby a surplus has been reported, following a deficit of USD31.5bn in February.

The results will renew concerns that China’s domestic economy is not responding to government attempts to stimulate demand after it cited this as a priority earlier this year.

Russia – Russia’s central bank refrained from cutting interest rates for a fifth month, signalling reluctance to deploy monetary stimulus to bolster growth as it focuses on containing inflation.

Bank Rossii in Moscow left the refinancing rate at 8percent, the central bank said in a statement on Thursday.

The world’s largest energy exporter cut inflation below Italy’s rate for the first time in March and reduced it further last month as some food prices fell. Vladimir Putin, sworn in for his third term as president on May 7, battled inflation during his first eight years in the Kremlin after the rate peaked at 127percent in July 1999.

U.S. – The U.S. trade deficit widened at its fastest rate for 10 months in March. Official figures from the Commerce Department show the deficit at USD51.8bn in March, up from USD45.4bn in February.

Rising imports of oil, cars, mobile phones and clothing contributed to a 5.2percent rise in exports to USD238.6bn, which more than cancelled out a 2.9percent rise in exports to USD168.6bn.

Exports to Europe hit a record high, despite the eurozone debt crisis.

Greece – The eurozone’s rescue fund has decided to hold back EUR1bn (USD1.3bn) of the latest instalment of its bailout to Greece.

This comes after a majority of Greeks voted against the political parties that supported the country’s bailouts and the austerity they have imposed. As with previous disbursements to Greece, the European Financial Stability Fund (EFSF) will transfer the EUR4.2 into a segregated account which will be used for debt service payments.

The uncertainty of whether Greece might leave the eurozone has spooked investors and angered European officials, who want Greece to stick to the austerity cuts previously agreed.

Greece is due EUR39.4bn of its EUR110bn bailout before the end of June.

Germany – German exports grew for the third month in a row in March, with goods worth EUR98.9bn (USD128bn) exported.

German firms had the most success in markets outside the European Union (E.U.), where they recorded growth of 6.1percent compared with the year before.

“The German economy is profiting from the revival of world trade,” said Ulrike Rondorf of Commerzbank. “Demand from the U.S. has increased and from Asia too. As German companies are very competitive they are especially well placed to profit from this.”

Portugal – Portugal has angered its’ locals with the decision to scrap four of its 14 public holidays. Two religious festivals and two other public holidays will be suspended for five years from 2013.

The country agreed a EUR78bn bailout deal with the E.U., European Central Bank (ECB) and International Monetary Fund (IMF) last year and recently passed the latest review of its spending cuts. It is hoped the suspension of the public holidays will improve competitiveness and boost economic activity.

Commodities – Goldman Sachs Group Inc. stood by its forecast for a rally in gold this year, saying that the precious metal will advance to USD1,840 an ounce over six months as the U.S. central bank embarks on a third round of stimulus in June.

The precious metal remains the “currency of last resort,” according to analysts led by Jeffrey Currie in a report issued on Wednesday, the same day that gold sank to the lowest level in four months as Europe’s debt crisis boosted the dollar. The forecast implies a 15percent surge.

Spotlight on: Investor sentiment for the next 12 months

The second annual BNY Mellon-sponsored survey conducted by the Economist Intelligence Unit (EIU) has found that almost half (47percent) of respondents believe that we will see the exit from the euro zone of one or more peripheral countries in the next 12 months, and only 17percent of survey respondents consider the E.U. among their top markets for asset price growth potential in the next 12 months. Meanwhile, the EIU identifies an oil price spike, tied in part to tensions over Iran’s nuclear programme, to be the main obstacle to global growth.

A survey of some 800 institutional investors and corporate executives drawn from 77 different countries, The Search for Growth: Opportunities and Risk for Institutional Investors in 2012 examines investor views about the prospects for growth across a range of asset classes, sectors and regions. According to the survey, global investors feel moderately optimistic about growth prospects over the next 12 months, in large part to the apparent stabilisation of the European debt markets, which is buying time for E.U. member states to engineer an economic recovery. But opinions among survey respondents and interviewees vary widely according to region, especially given the dramatically different growth prospects of emerging Asian and euro zone countries.

Speaking at Economist Conferences’ Bellwether Europe summit in London on Thursday, Cynthia Steer, Head of Manager Research and Investment Solutions at BNY Mellon Investment Management, discussed how south-south trade relations are redrawing the financial map of the world. “I believe we are on the verge of a revolutionary new chapter in emerging markets investing, as burgeoning trade relations between developing countries create a new South Silk Trade Route,” said Steer.

The EIU research found that, while investors appear buoyed by recent events, the fundamentals of the global economy have not improved significantly, and new risks have arisen to replace older ones. Following the stock market rally that opened 2012, the survey begs the question whether investors are pinning too much hope on what appears to be just a slight respite in financial markets. Survey responses indicate that investors believe the principal risks the market will face in 2012 relate to geopolitical events rather than strictly market-based developments.

Some of the key findings from the report include the following:

Investors see some opportunities in global financial markets – among survey respondents, 85percent perceive significant opportunities, although 51percent acknowledge that there are major downside risks. The easing of the European debt crisis, coupled with a somewhat better economic performance in the U.S., has created a more stable outlook for financial markets, though this relief may prove to be short lived.

Geopolitics rather than market forces will govern the outcome in 2012 – hopes for further improvement hinge less on economic activity generated by the private sector than on governments’ ability to play their geopolitical roles properly. The Economist Intelligence Unit’s forecast still places the threat of an oil price spike, tied in part to tensions over Iran’s nuclear programme, as the main obstacle to global growth.

European investors are more optimistic than the global aggregate about the euro zone’s future – almost half (47percent) of survey respondents agree that an austerity plan would be likely to collapse in one or more peripheral euro zone countries, prompting the exit of one or more in the next 12 months. But less than one-third (29percent) of European investors think this scenario is likely.

Investor sentiment echoes grim forecast for the euro zone – only 17percent of survey respondents consider the E.U. among their top markets for asset price growth potential in the next 12 months. More than 60percent expect the euro itself to decrease in value, the worst projected performance for any currency covered in the survey and a dramatic turnabout from 2011, when 53percent of respondents expected the euro to appreciate.

Slower growth in China and India shifts attention to smaller emerging economies – smaller economies are likely to benefit from demographic trends as well as economic or political factors. 40percent of respondents based in the euro zone consider South-east Asia as offering the best potential for asset price growth, the second most highly selected region or country.

The information set out herein has been obtained from various public sources and is by way of information only. Broadgate Financial can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.