Weekly global market review: 25 – 29 August

25 – 29 August 2008

US
The US market witnessed a number of positive surprises over the week. Consumer confidence rose to 56.9, up 5 points on the previous month, and this followed reports of a rise in durable and capital goods orders in June and July that are inconsistent with recessionary dynamics.

In addition, second-quarter GDP growth was revised up significantly from 1.9 percent to 3.3 percent, largely because of strong exports, while the minutes of the last Federal Open Market Committee meeting signalled a broad consensus that the next monetary policy change would be a rate hike. Nevertheless, against this backdrop the S&P fell by 0.7 percent, but closed up 1.5 percent over the month.

Japan
In contrast, Japanese data left investors with little cheer, as the government announced a modest economic package. The National Consumer Price Index rose to a decade high of 2.3 percent in July, providing a further squeeze on real incomes. However, Japanese equities ignored this negative news recording their best performance for three weeks, as both the Topix Index and the Nikkei 225 Average rose 3.2 percent – although the latter remained down 2.3 percent for August, its third monthly decline.

Europe
Further weak economic data flowed out of Europe, as the IFO survey came in below expectations, suggesting that German economic growth will slow faster than currently expected.

Meanwhile, European Central Bank (ECB) officials continued their hawkish stance, reiterating upside inflation risks. ECB board member Axel Weber suggested there was “considerable risk” that inflation could stay above target level for 2009 and 2010.

In spite of this, European stocks moved higher as financials returned to favour. Germany’s DAX rose 1.3 percent and France’s CAC 40 gained 1.9 percent.

UK
There was little positive news from the UK, as mortgage approvals and house prices continued to fall, which drove sterling to a 12-year low on a trade-weighted basis. Yet the FTSE All-Share climbed 2.3 percent, as UK equities rallied in the wake of positive reports from the US.

Asia & Developing Markets
Asian stocks bounced back over the week, after stronger-than-expected US GDP data soothed fears about slowing growth in the world’s largest economy. Subsequently, Hong Kong’s Hang Seng index increased by 4.3 percent.

Bonds
Government bond prices rose across global markets, but masked high volatility. European government bonds swung sharply as investors contemplated a possible cut in eurozone interest rates. However hawkish rhetoric, as expressed by ECB officials, offset most of the associated performance. Meanwhile, positive growth figures from the US also impacted prices.

Currencies
In currency markets, the US dollar touched a six-month high against the euro at the beginning of the week, before drifting back as investors took profits. Sterling turned out to be the main mover in the market, as weaker housing data bolstered concerns that the UK economy would slip into recession.

Commodities
Oil provided the main impetus in commodities, as concerns grew over the potential impact of tropical storm Gustav. The price of October US light sweet crude rose 0.7 percent to USD 115.46 a barrel, before falling back as traders closed down positions ahead of the US holiday weekend. Elsewhere, gold performed well, rising 1.2 percent over the period.

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.