Market Round Up

UK

• Markets broadly flat with mixed news and calls for further Quantitative Easing (QE) from some market sectors.
• Some predict that further QE will do little immediately to increase bank lending or household consumption.
• The UK is facing uncomfortably high inflation data, mixed signals on economic activity and some suggestions, yet again, of the possibility of a “double dip” 

US

• The dollar continues to weaken with the growing likelihood of further QE measures.
• Data is mixed regarding employment and inflation and has revived concern about the pace of recovery.
• Consumer confidence, personal consumption and income data was much better than expected. The speed of growth is slowing, but still broadly in expansionary territory.
• Consensus is that any action will be taken after the November midterm elections and there is speculation that any intervention will be more than just a “one off” purchase programme.

Europe

• The cost of credit default protection for Portugal, Ireland, Greece & Spain (PIGS) is lower but still at elevated levels. News of the upward revision of the Bank of Ireland bailout did not offer much comfort to investors.
• Europe has seen a slowdown in manufacturing and services confidence and new orders.
• Euro has risen 15% against the dollar since June. Europe stands out as an area where Quantitative Easing will probably not be deployed. Exporters are facing the headwind of a stronger currency and are more sensitive to the slowing of the global manufacturing cycle.
• Although the ECB has not announced any formal measures, it has been both purchasing Government Bonds and increasing finance available to banks.
• Germany continues to stand out in terms of encouraging gains. There is a belief that the Euro will not be allowed to fail as it is not politically desirable to the bigger players. 

Asia & Emerging Markets

• China was the only country to report acceleration in business sentiment and this proved to be a support to Asian assets and commodities.
• Asia continues to benefit from low debt levels and a whole raft of general domestic demand to fuel recovery.
• Emerging markets still seen as high conviction, long term holdings by investors.
• Japan has recently begun to intervene to limit currency strength and will be managed to limit monetary expansion.
• However, some believe that stimulus measures are unlikely to be announced in the near future.

Fixed Interest

• The correlation between the asset classes has been at an exceptional level and this is expected to breakdown as we enter 2011.
• The flight to Government Bonds seen in August not likely to be repeated as it becomes easier to pick the winners in the Corporate Bond market.
• Still a time to look at strategic funds for best potential and most consistent returns.

Aviva International Property (formerly Henderson International Property)

We have received notification from Aviva to confirm that, despite only just taking the fund on from Henderson, they have decided to close the International Property Fund.  We fully expected them to take the fund over and manage it properly, as Aviva are recognised commercial property fund specialists. Unfortunately, it would appear that there is not sufficient money remaining in the fund to allow this to happen. As a result, we will be encouraging investors to switch to alternative funds. We will be reviewing clients’ portfolios and advising on the best course of action and we will be writing to clients individually with our specific recommendations.

Conclusion

With interest rates still at record low levels and gold at record high levels and with house prices suffering there largest ever single month fall of 3.6%, according to the Halifax, it is hard to be overly confident about the short term.  Add the Comprehensive Spending Review just 10 days away and the Tory party conference announcements on child benefit, there is some trepidation about what is store for us next. Despite all of this, the consensus still favours equity investment ahead of other asset classes and UK and Global markets have held up well.

After poor weather last week but an excellent result in the Ryder Cup we can at least say the “weather’s nice” !


Date of Next Meeting:  8th November 2010