European markets continue to fall

European markets fell for a fourth straight week as reinsurance and energy related companies lagged behind.
Concern grew over the global economic fallout from Japan’s post-earthquake nuclear crisis, although the losses were pared by G7 intervention to weaken the yen. Asian equities closed lower amid volatile trading as the tragedy unfolding in Japan sparked widespread selling.

In the US, financial shares led a rally late in the week as the Federal Reserve announced easing regulatory restrictions on the largest banks that have passed most of the government’s “stress tests”.
The central bank noted that banks such as J P Morgan Chase and Wells Fargo will be able to increase dividends, buy back shares or repay government aid from “significant improvement” in their capitalisation, a positive sign for the overall economy.

However, inflation worries arose again as the consumer price index increased, primarily attributable to higher energy and food costs, even though core inflation appeared to be relatively tame.
Major crude oil future prices vacillated as the military situation developed in Libya, a country with one of the largest reserves in Africa.
Fed Chairman Bernanke noted that the improving economy should help US state fiscal p
ositions.

He also observed that higher commodity prices have put pressure on inflation but low domestic labour costs remain stable.
Finally, US housing start-ups were down month on month and year on year, negatively surprising most economists. It appears that homebuilders may be reluctant to take on new construction amid lingering over-supply in the current market. In the UK it was a quiet week for gilts as firm manufacturing numbers were countered by weak service figures which fell disappointingly.
The house price index was up surprisingly as mortgage approvals firmed and consumer credit contracted.

In the eurozone European Central Bank President Trichet signalled to the market that the ECB may raise interest rates as early as next month citing higher food and energy prices and strong producer price data.
Economic data in the region remained positive as the unemployment rate fell.
In inflation news, the consumer price index was up less than feared and fourth quarter 2010 GDP was confirmed at an expected 2 percent year on year.

The newly elected Irish government commentary seemed to pacify markets and with the exception of Greece, peripheral market spreads tightened week on week.
In Asia, increased production and higher oil prices boosted PetroChina’s earnings and China Mobile benefited from healthy new subscriber growth. It remains well placed for long term growth given its superior network coverage and ongoing infrastructure investment.
If Toyota Japan fails to restart production, several companies downstream could be affected.