Weekly global market review: 21 – 25 July
As oil declined further, global equities struck a positive tone, although optimism is limited by ongoing doubts over the health of the global economy, and in the financial sector in particular. Highlighting recent problems, data now reveal that 22 of 23 developed economies have fallen into bear-market territory (down 20 percent from recent highs), while 23 out of 25 developing countries are suffering a similar fate.21 – 25 July
After a strong start to the week, US equities saw gains eroded by a sharp drop in financials on Thursday. The worst one-day fall for the sector in eight years was followed by something of a rebound on Friday, leaving the S&P 500 index just 0.2 percent down for the week.
While the slower economy would normally result in easier monetary policy, rising inflation and a weak exchange rate call for the opposite. Wednesday’s release of the Beige Book report on regional US economies served only to exacerbate the US Federal Reserve (Fed)’s dilemma, highlighting accelerating inflation rates and falling growth.
Japanese equities continued to rise, as they have since mid July, before falling back in the final session of the week in reaction to Thursday’s sharp US sell off. Nevertheless, a weekly gain of 3.7 percent by the TOPIX left Japan among the market leaders.
Survey data revealed bigger cracks appearing in the outlook for eurozone economic growth, as closely watched purchasing managers’ indices showed a contraction of private sector activity for the second-consecutive month, and further reports detailed sharp falls in business confidence in Germany, France and Italy. Notwithstanding the above, the sell off in oil and other commodities helped a rally in European equities over the week, as the German DAX finished 0.8 percent higher and France’s CAC 40 climbed 1.8 percent.
A similar scenario sees economists earmarking Q3 2008 for the first quarter of UK economic contraction since 1992. After averaging around 0.7 percent per quarter in recent years, second-quarter growth of 0.2 percent was supported by a robust April, and disappointing construction and manufacturing, along with persistently downbeat business surveys do not bode well for the next period.
Asia & Developing Markets
After declines in the previous week, the Asia-Pacific region led world stock markets, supported by weaker oil prices. Hong Kong’s Hang Seng index ended up 4.0 percent, while Taiwan rose by 6.1 percent and Korea gained 5.8 percent.
Russia's RTS Index dropped below 2,000 points for the first time since late March, as risk premiums rose on Thursday's decision by Bob Dudley, the CEO of TNK-BP, to leave the country. The move was the culmination of ongoing difficulties experienced by the joint venture recently.
US Treasuries were volatile, as markets constantly shift expectations for US interest rate policy in response to Fed statements, economic data, inflation and turmoil in the credit markets. Globally, bond yields were broadly higher, as prices fell in response to the equity market rally.
Global currencies pared back gains versus the US dollar, with the “greenback” staging its biggest rally against the euro since mid-June.
Oil prices continued to fall, dropping below USD 125 per barrel and fuelling declines in other commodities, such as corn and soya beans, which had hit record highs earlier in the month.
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.