Weekly global market review: 11- 15 August
Inflation concerns were last week outweighed by investors’ focus on the deteriorating prospects for global growth.
11 - 15 August
Weak economic data has reduced expectations of Federal Reserve (Fed) rate hikes. Among the most recent announcements, CPI figures rose to register the highest inflation rate since 1991, while weekly jobless claims topped 400,000 – noted as a recessionary level - for the fourth week in a row, and continuing claims reached their highest level since November 2003.
US stocks saw mixed performance – resulting in a 0.2 percent gain for the S&P 500, and a 1.6 percent gain for the Nasdaq Composite index – helped at the end of the week by the strong performance of the dollar and falls in commodity prices.
Japan reported a 2.4 percent decline in second-quarter GDP that supported the recent decision by prime minister Yasuo Fukuda's cabinet to downgrade its official description of the economy to "weakening". The latest news renders unlikely the chance of a Bank of Japan rate hike anytime soon. Japanese markets ended the week lower, with the Topix falling 1.0 percent.
While the economy- and credit-related problems in the US have been well publicised since mid-2007, the situation in Europe has come as something of a surprise, as economic growth has weakened enough to force the European Central Bank into monetary easing.
Statistics showed that Europe’s economy contracted by 0.2 percent in the second quarter, compared to the previous three-month period, when GDP rose by 0.7 percent. Meanwhile, German GDP fell by 0.5 percent from the first quarter, led by a slump in construction.
Similar issues are afoot in the UK, where the Bank of England’s latest report highlighted the risk of inflation peaking above 5 percent and a growth outlook that was markedly pessimistic. Governor Mervyn King revealed that there was a possibility of negative growth for a quarter or two, stating that there was a "chill in the economic air".
Asia & Developing Markets
Weak commodities markets hurt Hong Kong’s Hang Seng index, as stocks fell by 3.3 percent over the week. Elsewhere in Asia, the Hong Kong China Enterprises index of mainland stocks listed in Hong Kong was down by 4.9 percent.
Latin American markets were also hit by weaker oil and commodity prices, ending the week lower. Brazil’s Bovespa fell by 4.1 percent, while Argentina’s Merval dropped by 2.4 percent. Elsewhere in the emerging markets space, Russia’s stockmarket rebounded from lows, gaining by 3.6 percent after heavy losses experienced in the previous week.
Government bond markets gained as poor inflation data were discounted and prospects for rate cuts became stronger in the light of weaker economic newsflow. Credit markets came under some pressure owing to expectations of heavy supply in the fall. Some new issues during the week actually came to market with sizeable concessions (i.e. wider spreads) relative to existing issues.
In currency markets, the US dollar continued to move positively against all currencies, with the strongest move coming against the pound: the release of the BoE inflation report saw sterling collapse against the “greenback”.
The weaker global economic tone combined with a stronger US dollar has led to a major slump in commodity prices. Having peaked in June/July, precious metals prices have fallen hard, with gold bullion recording its worst weak in 25 years in dropping to USD 786 per ounce. Crude oil, meanwhile, lost 4.0 percent last week, and is now more than 20 percent off all-time peaks registered earlier this year.
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.