Banks fail to deliver on growth for markets

And there was no room for optimism on the broader euro zone economy as purchasing managers’ data for May showed the combined manufacturing and services output for the region contracting at the fastest pace for nearly three years.

German industrial output and manufacturing orders data were also less than inspiring. The concerns over global growth highlighted by such data, plus the previous week’s dismal US jobs report and recent worrying figures out of China – allied to the subsequent lack of fresh policy initiatives from the Fed and the ECB – made for a nervous end to the week for financial markets.

Industrial commodities, in particular, came under pressure as China’s rate cut served to highlight worries about raw material demand.

The Reuters-Jefferies CRB commodity index fell 1 per cent yesterday with Brent crude oil down more than $2 a barrel on the day and nursing a modest loss over the week. Copper sank below $7,300 a tonne to a six-month low.

Gold pared the strong gains recorded in the first part of the week and moved back below the $1,600 an ounce mark as its appeal as a hedge against further US monetary easing faded.

The euro also eased back after rising to a one-week high within striking distance of the $1.26 level.

However, the single currency did manage a modest gain over the week as a whole.

Equities had a more positive week – even as the initially positive impact from the Chinese rate cut soon began to fade.

By midday yesterday in New York, the SP 500 was heading for a weekly rise of 3.5 per cent while the FTSE Eurofirst 300 index rose 2.9 per cent and the Spanish stock market leapt 8 per cent over the five-day period.

The Nikkei 225 Average in Tokyo, meanwhile, narrowly avoided a tenth successive weekly decline.

The improved sentiment towards stocks sent yields on highly rated government bonds in the US, Germany and Britain bouncing off recent record lows.

The yield on the 10-year Treasury climbed 14bp over the week to 1.61 per cent, that on the German Bund rose 15bp to 1.32 and that on the UK gilt added 9bp to 1.63 per cent.

Spain’s 10-year yield briefly fell to within sight of the 6 per cent following Madrid’s well-received debt auction.

But by the close yesterday, it was back at 6.24 per cent. – (Copyright The Financial Times Limited 2012)