Weekly global market review: 7 – 11 July
The MSCI World, S&P 500 and FTSE 100 all took on the dreaded status of “bear market” last week, as concerns intensified about the health of the US financial system and a fresh surge in oil prices.7 – 11 July 2008
Worries over speculation that capital mortgage agencies Fannie Mae and Freddie Mac might need to be bailed out by the government - the two guarantee about half the USD 12,000 billion of outstanding US home loans – while oil prices rallied to further highs, in excess of USD 140 per barrel. In response, US equities fell once again, with the S&P 500 closing 1.9 percent lower.
Stocks were similarly unsettled by the themes plaguing US markets, but also by data that showed Japanese wholesale inflation at a fresh 27-year high. The week saw the TOPIX index lose 0.9 percent.
While mining and energy companies prospered, rising oil prices hit airline stocks, and car and autopart makers, and banks suffered from the financial sector woes, to leave European bourses lower over the week. Germany’s Dax ended down 1.9 percent, while France’s CAC 40 plunged 3.9 percent into the red.
Having reduced UK interest rates three times since December 2007, the Bank of England (BoE) left the cost of borrowing on hold at 5.0 percent last week, caught between a falling housing market and slowing economy, and rising inflation. With regards to the housing market, recent surveys show home prices declining in June at the fastest pace witnessed since March 1993.
Asia & Developing Markets
Asia-Pacific was the best performing region last week, as miners and energy stocks advanced on the surging price of oil, and the broader regional index was aided by particularly positive performance from Hong Kong, where the Hang Seng index rose by 3.6 percent.
Latin American markets were mixed: Mexico’s Bolsa fell by 2.6 percent, while Brazil’s Bovespa gained by 1.3 percent.
Government bond prices gained marginally over the week, despite negative performance on Friday, as investors began to suspect increased issuance if the US government was forced to offer assistance to Fannie Mae and Freddie Mac.
In the currency markets, the US dollar again came under pressure from the euro and the yen, but was more resilient versus sterling, as poor UK economic data prompted some speculation of BoE interest rate cuts in the future.
Oil prices rallied strongly, hitting fresh highs as supply concerns returned and geopolitical tensions were heightened by Iran’s missile tests. Brent crude closed the week at almost USD144 a barrel, as oil workers in Brazil threatened to strike while militants in Nigeria abandoned a ceasefire. How much of oil’s rapid price rise is down to speculation however, as investors look for a hedge against the falling US dollar, is unknown.
In other commodity news, gold bullion rose towards four-month highs, as investors sought a haven from soaring inflation and on the prospect of Iran/Israel confrontation.
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.