Weekly market review around the world: 19 – 23 May

4th June 2008, Comments 0 comments

The surging price of oil has grabbed the global economic headlines in recent days, and certainly provided the main focus for financial markets in the week of 19 -23 May. Global equities fell, marking a significant turnaround from the four-month highs reached in previous weeks.

19 – 23 May 2008

The US Central Bank cut its growth expectations and raised its inflation forecasts for the year. What this probably means that the recent spate of interest rate cuts is unlikely to continue. Against this backdrop, the S&P suffered its biggest weekly loss since February, falling by 3.5 percent, while the NASDAQ closed down 3.3 percent.

Similar themes continued to influence Japanese markets, as the Topix index declined 1.37 percent. Inflation worries remain prominent as the Bank of Japan kept interest rates on hold.

Eurozone equity markets also saw losses, as Frankfurt’s DAX declined by 3.0 percent and the CAC 40 in Paris was down 2.8 percent. Transport and retail sectors came under pressure, again prompted by escalating oil prices.

A rise in Eurozone interest rates now looks to be a possibility this year after strong producer figures and stronger than expected business confidence survey results in Germany.

The high oil price was a negative influence for the wider market as it increased inflation worries and added to forecasts that the Bank of England would keep UK interest rates on hold for the foreseeable future, despite the weakening growth outlook. Subsequently, the FTSE All-Share closed down 3.4 percent.

Asia & Developing Markets
Outside Japan, other Asian equity markets suffered similar losses, tracking the negative performance in the US.

Hong Kong’s Hang Seng fell by 3.5 percent, while the Hong Kong China Enterprises index of Chinese stocks listed in Hong Kong declined by 3.9 percent.

Elsewhere, India’s Sensex recorded one of the largest index losses for the week closing down 4.5 percent, while Taiwan’s market also suffered, declining 3.9 percent.

Latin American equities also fell, with Brazil’s Bovespa closing down 1.8 percent and Mexico’s Bolsa falling 1.3 percent.

Fears over inflation left European government bonds lower over the week, while UK gilts suffered similar losses. Credit markets generally saw a change in sentiment after the improvement of the previous week. The iTraxx Crossover index, a closely watched barometer of broad credit quality, rose 48 basis points to 454bp.
The possibility of increased Eurozone interest rates, together with gloomy US news, helped rally the Euro to a four-week high versus the dollar. Sterling rose slightly found support after UK interest rate cuts were put on hold, following the CBI report.

As discussed, oil prices dominated the headlines as the NYMEX West Texas Intermediate, the benchmark US oil price, continued its meteoric rise peaking at USD 135.09 a barrel. In contrast to equities and bonds, commodities in general showed some strength over the week, as gold bullion recorded gains, rising 2.4 percent.

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.

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