Weekly market review around the world: 23 – 27 June
As record oil prices further fuelled concerns over higher inflation levels, global equities continued their recent sell off ending the week significantly lower. In addition, speculation circulated over new bank writedowns, as realisation hit once again, that credit market problems are not over.23 - 27 June
Economic data in the US confirmed a slowdown, as US Conference Board’s consumer confidence index hit its lowest level for more than 15 years. In addition, personal expenditure data showed that consumers are continuing to store cash, saving a larger-than-usual 5 percent of earnings. Against this backdrop, the S&P declined 3.0 percent, while the tech-heavy NASDAQ ended almost 4.0 percent lower.
Data from Japan included a rising core CPI inflation figure, to a level much higher than the Bank of Japan's 0.5 percent policy rate. There are also indications that June's figure will rise further when announced at the end of July. Despite falls in the region of 2.5 percent - 3.0 percent last week, the Japanese stock market remains among the leaders in the second quarter of 2008.
Soaring oil prices and the general suffering of financial companies saw European indices plumbing multi-year lows. Meanwhile, the growth of eurozone money supply, together with higher inflation levels, provided further reason for the European Central Bank to raise interest rates at this week’s meeting.
The possibility of a UK rate rise next week also increased, as it emerged that the majority of the Bank of England’s Monetary Policy Committee considered raising the cost of borrowing last month (June). The tone was mirrored by governor Mervyn King’s recent comments that the BoE is “…absolutely determined to bring inflation back to target”.
Asia & Developing Markets
The Asia-Pacific region has lagged its global counterparts over the second quarter of 2008, and disappointed again last week. The stockmarkets of Hong Kong and Korea closed around 3.0 percent lower, while Taiwan’s major index ended with a 4.5 percent decline.
Government bond prices rose, and yields fell sharply, as a result of safe-haven buying, following the tumultuous equity market behaviour. Credit spreads, meanwhile, were wider as fundamentals deteriorated on monocline downgrades and stubbornly high commodity prices.
The major theme in currency markets saw renewed US dollar weakness, following the Federal Reserve’s decision to keep the Fed Funds rate at 2.0 percent.
In commodity markets, base metal prices were generally weaker, with only copper continuing to rally. Precious metals prices moved higher, however, in line with a weaker US dollar and higher oil prices (WTI reaching USD 142). Agriculture prices were up across the board last week, as heavy rains soaked the Midwest, pushing both corn and soybean prices to record levels.
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.