Weekly market review around the world: 9 – 13 June
9 - 13 June 2008
Federal Reserve (FED) Chairman, Ben Bernanke, expressed the Federal Open Market Committee’s concerns for inflation going forward. Latest economic data showed that the US consumer prices index rose 4.2 percent in the year to May, driven by surging energy prices.
The core rate was contained at 2.3 percent, however, this remained above the FED’s 2 percent comfort ceiling. Against this backdrop, the S&P fell by just 0.1 percent, while the NASDAQ closed down 0.8 percent.
Inflation concerns spilled over into Japan as markets fell over the period. Focus fell upon corporate goods prices which rose at their fastest pace for more than 27 years.
Subsequently, the Topix index finished down 4.0 percent, while the Nikkei 225 Average declined by 3.6 percent, eroding much of the gains seen in previous weeks.
European equity markets responded in similar fashion to the US, as other negative inflation reports were released in the week. French consumer prices rose 3.3 percent in May. In response, France’s CAC 40 declined by 2.4 percent while the German Dax fell 0.6 percent.
In the UK, the Bank of England’s quarterly survey for inflation expectations found that consumers perceived inflation to be at 4.9 percent, prompting concern amongst policy makers, based on the fear that inflation expectations are often self-fulfilling. During this period, the FTSE All-Share closed down 1.8 percent for the week.
Asia & Developing Markets
Asian equity markets suffered similar losses, dropping steeply as concerns about inflation gathered momentum. Hong Kong’s Hang Seng fell dramatically by 7.4 percent, while the Hong Kong China Enterprises index of Chinese stocks listed in Hong Kong tumbled 9.6 percent. Latin American equities also fell, with Brazil’s Bovespa down 3.7 percent and Mexico’s Bolsa declining by 2.4 percent.
Global bond markets declined over the period as central banks continued to focus on the threat posed by inflation. Government bonds, in particular, suffered with the US two-year yield rising above 3 percent for the first time since the beginning of 2008.
The increase in anti-inflation rhetoric from central banks and its potential impact on corporate fundamentals was the main driver for the underperformance in credit markets.
The iTraxx Crossover index, a closely watched barometer of broad credit quality, widened by 30bps trading at 490bps towards the end of the week.
In currency markets, the US dollar performed well and emerged as the clear winner, following tough inflation talk from central banks. The greenback appreciated 2.2 percent, reaching its highest level since February against other major currencies. Specifically, the dollar gained 2.6 percent against the euro, its best weekly performance since January.
In commodities, US crude oil prices were volatile over the period trading between USD $130.80 and USD $138.30, before closing marginally up 0.3 percent.
Gold fell by 3.5 percent, as the firmer dollar and lower oil price reduced demand for the yellow metal as a hedge against inflation. Meanwhile corn prices extended their record run, boosting other agricultural commodities.
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.