MARKET UPDATEUK
- The FTSE All Share fell 5% during the month of September making Q3 performance the worst quarter since 2002, with double the volatility of the previous quarter
- The forecasts for economic growth have been cut from 1.5% to 1.1% for 2011 and bank rates held at 0.50% for the 30th consecutive month
- The CPI rate targeted at 2% was actually 4.5% for August, with RPI of 5.2%
- Financials remained under pressure with credit agency Moodys downgrading RBS and Lloyds
- Positive news included good results for a number of retailers, including Next and in defensive sectors such as pharmaceuticals, where Astra Zeneca anticipates an upturn in fortunes after settling a dispute with a rival drugs company over its most profitable drug
US
- The US equity market fell for the fifth consecutive month due to fears over sovereign debt and general global recession. Investors moved towards high yield and defensive stocks
- Unemployment rates remained steady and GDP revised upwards despite downwards revisions in real disposable income, suggesting that households are dipping further into their savings
- Manufacturing sales deteriorated for the second month due partly to loss of consumer confidence
- The Fed decided to sell short dated securities in favour of long dated Treasuries in an attempt to twist yield curves. They report a significant downside to the economic outlook
EUROPE
- This was a torrid month dominated by the Greek debt crisis, fears of default and the consequences for the wider Eurozone
- Slovakia finally approved the European Financial Stability Facility to bring to a conclusion deliberations on a further bailout for Greece
- European leaders are now expected to move quickly to impose more stringent requirements on leading banks to protect themselves against losses and in a bid to restore confidence in the European financial system
- It remains clear that German economic activity is slowing sharply and the downturn remains broadly based by country
ASIA & EMERGING MARKETS
- The markets ended September lower as investors continued to reduce their risk exposure as a result of deteriorating global economic outlook
- Equities in Hong Kong and China fell notably. Chinese manufacturing continues to decelerate as global demand outlook remains weak and policy tightening takes effect
- Inflation in India remains persistently high, with a slowdown in industrial production. The Bank of India raised interest rate to 8.25%
- The MSCI Emerging Markets index dropped by 14.8%, a far bigger fall than registered by developed markets
- Turkey proved most resilient with growth of 3.5%. GDP grew by 10.2% during the first half of the year, making it the second fastest growing economy in the world after China
- Commodity prices declined across the board due to increasing concerns of slowing global growth
JAPAN
- Japanese equity markets fell modestly compared with other Asian markets, as the country directed it efforts towards re-building post earthquake
- With the strengthening of the yen to reach record highs against the US dollar exporters faced a headwind of declining external demand
- The impressive recent recovery in Japanese manufacturing has slowed slightly with deteriorating global demand outlook
- The Bank of Japan survey of larger companies predicts a deceleration in improvement in business conditions going forward, with downward revision of capital expenditure plans
FIXED INTEREST
- The recent division in performance between government bonds and other fixed interest assets continued into September
- The major banks have intimated that further monetary easing will be employed in the coming months, whilst the Fed has already taken measures to flatten yield curves by selling short term bonds and investing long
- There was a rally in core government bonds, but peripheral Eurozone government debt performance was extremely mixed, with Greek Bonds at extreme yield levels, Italy weakening and Ireland rallying on evidence of improved economic performance
- Investment Grade and Corporate Bonds underperformed, especially European High Yield. Banks remain the weakest sector in the credit market
Conclusion
I was concerned that my conclusion for our meeting was rather gloomy but as evidenced by our market summaries for September it was unfortunately correct. We are even out of the rugby after are a somewhat dismal performance but I thought the Welsh team were excellent and unlucky to go out in the Semi’s. However at the time of writing, half way through October, we have seen a rally in equities here and overseas of around 8% as tough talking by European Leaders has breathed hope into the markets that a credible plan to support sovereign debt and the European banks is looking more optimistic. It would seem that there is now a clear understanding amongst European leaders that a political solution to the problem is essential in the short term. Whilst the ECB has been continuing to support Italian and Spanish bond markets this is not proving sufficient to reassure markets and as a result the EU is looking to increase the European Financial Stability Facility to insure national bond sales. However, this is going to have to be a huge fund, $2 Trillion has been mentioned, in order to provide sufficient confidence. Help from wealthier economies may be required and is likely as it is in no country’s interest for the Eurozone to fail. If things go well at the summit, one could see a further rally in markets as sentiment will undoubtedly improve. There will however still be the need for serious austerity measures to continue across developed economies and the outlook remains difficult as all growth forecasts have moved lower. With inflation running at over 5% (announced this week) and deposit rates well under this, it has never been harder for the investor but the message has to be stay diversified and stay invested.
Date of Next Meeting: 16th November 2011
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