Weekly global market review: 1 – 5 September 2008
World equity markets tumbled in unison last week on the back of growing concerns about the health of the global economy, mounting fears for the shape of banks and a further fall in commodity prices. On Monday, markets rebound sharply, following the US Treasury’s move to secure US mortgage giants Freddie Mac and Fannie Mae.1 - 5 September 2008
US economic data from the week included an unexpected jobless rate rise to a five-year high of 6.1 percent in August. Employment figures fell for an eighth straight month, increasing the risk of recession as households face a struggling labour market and high inflation. Against this backdrop, the S&P fell 3.2 percent, and the tech-heavy NASDAQ declined 4.7 percent as the deteriorating outlook for growth hit technology stocks.
Economic releases in Japan further increased negative sentiment. The labour market remains moderately weak with the unemployment rate slightly higher than expected at 4 percent. Meanwhile the Consumer Price Index (CPI) rose to 2.4 percent, applying further strain to household income. Subsequently the Nikkei 225 Average closed at its lowest level for five months, down 6.6 percent, while the Topix Index dropped 6.7 percent.
The European Central Bank (ECB) kept interest rates on hold despite lower economic growth forecasts for 2008 and 2009. The hawkish approach focused on inflationary pressures, diminishing the prospect of rate cuts in the near future. Industrial production in Germany slid 1.8 percent, 0.5 percent more than economists first forecasted, raising the prospect of a recession in Europe’s largest economy. The German DAX closed down 4.6 percent, while France’s CAC 40 lost 6.4 percent.
In the UK, both consumer confidence and house prices continued to fall. The Bank of England (BoE) revealed that UK mortgage approvals hit a record low in July, raising fears that the fragile housing market could lead the economy into recession. On the back of this, the FTSE All-Share suffered its worst week in six years falling 6.6 percent.
Asia & Developing Markets
Outside Japan, other Asian equity markets suffered a similar fate. The Hong Kong China Enterprises index of Chinese stocks, listed in Hong Kong, fell 8.3 percent, while Hong Kong’s Hang Seng index declined 6.3 percent. In the emerging market space, Latin American indices struggled, with Brazil’s Bovespa down 6.7 percent and Mexico’s Bolsa falling 1.5 percent. The Russian stockmarket remained under pressure with the RTS index falling 10.8 percent as political concerns weighed on sentiment.
In the wake of growing concerns and an increase in risk aversion amongst investors, government bond prices rose across most global markets. The flight to quality amongst investors saw 10-year bond yields fall to four-month lows in Europe. Elsewhere, 10-year gilt prices rose, while 10-year Treasury yields fell by 3.8 percent over the period.
In currency markets, the US dollar and Japanese yen benefited from the economic turbulence as investors sought safety from sliding equities. The US dollar gained 2.9 percent on the euro, touching an 11-month high, while Japanese yen strengthened against sterling. The pound fell 2.2 percent against the US dollar, hitting its weakest level since April 2006.
Commodity stocks suffered across the board, with the Reuters Jeffries CRB index, the benchmark indicator for the measure of global commodity markets, falling to its lowest level since early February. Oil (Brent Crude) dropped 9.7 percent and copper declined 4.8 percent to mark its lowest level since January.
For further information, or to discuss how current global economic conditions are affecting your investments, please feel free to contact Craig Welsh at Spectrum IFA Group or visit www.expatfinance.nl
This commentary was compiled with the assistance of BlackRock, one of the world’s leading investment management groups.