Weekly global market review: 28 July – 1 Aug
Extreme volatility returned to equity markets last week, as crude oil prices swung wildly and investors searched for clues on the outlook for the global economy. Share prices reacted accordingly, see-sawing over the week.
28 July – 1 Aug
US employment data revealed that the jobless rate moved up to 5.7 percent - its highest level in four years - as the economy shed jobs for the seventh-consecutive month. Of some encouragement, the pace of job losses was not as rapid as predicted by economists and remained below levels observed in previous recessions.
Subsequent news revealed that the US economy grew at an annualised rate of 1.9 percent in the second quarter. Again, this brought mixed reactions, as the figure was faster than earlier in 2008, but slower expected. The rate of growth was lifted by a mix of higher exports and declining imports, and higher levels of government-aided consumer spending. Over the week, the S&P 500 gained by 0.2 percent.
The ongoing concerns about the global economic outlook rippled through the Japanese stockmarket, as disappointing US economic reports resulted in heavy losses. The TOPIX index ended the week down 2.0 percent, while a similarly large decline saw the Nikkei 225 record its lowest close for nearly two weeks.
Data released in the eurozone revealed that confidence had plunged to its lowest level for five years, while consumer price inflation reached a record 4.1 percent. Of particular note, it also appears that the region’s powerhouse economy, Germany, could be heading into recessionary territory. European equity prices ended the week in a negative frame, slipping on Friday after carmakers were hit by a profit warning from BMW - the German DAX index ended the week 0.6 percent lower.
In the UK, meanwhile, economists have forecast months of intensifying pain, as survey data showed manufacturers were pessimistic about orders, but intent on raising prices. The lethal combination would likely prevent the Bank of England cutting interest rates anytime soon, although economists do not expect any tightening at this Thursday's MPC meeting.
Asia & Developing Markets
Asia-Pacific markets saw mixed performance, although most had bleak end to the week, falling on the disappointing growth and employment data from Asia’s most important export market.
In contrast, Hong Kong's Hang Seng reversed earlier losses, shrugging off concern over the weaker US data, as Chinese president Hu Jintao said he was committed to sustaining the country's rapid economic growth.
In emerging markets, Latin American indices were once again mixed: Mexico’s Bolsa gave up 0.5 percent, while Brazil’s Bovespa gained by 0.8 percent.
In government bonds, yields tumbled as poor economic data in the US and across Europe saw investors take the view that monetary tightening before year end looked less likely.
With the exception of the yen, global currencies weakened against the US dollar.
Crude oil ended the week lower, after a week of volatile trading. Ultimately, poor data from the US reversed earlier rallies on the view that slower-than-expected growth would slow demand for oil. Gold bullion, meanwhile, recovered somewhat after heavy midweek falls, climbing back through the USD 900-an-ounce mark to close at USD 914.
This commentary was compiled with the assistance of BlackRock, one of the world’s leading investment management groups.
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 www.spectrum-ifa.com or visit www.expatfinance.nl.