Weekly global market review: 18 – 22 August

18 – 22 August 2008

US
In the US, financial stocks had their worst week since mid-July, with concerns centred on talks of a possible bail out of ailing government-sponsored enterprises Fannie Mae and Freddie Mac.

After sending equity prices lower, the impact on the broader market was tempered somewhat on Friday, as Federal Reserve (Fed) chairman Ben Bernanke suggested the central bank would rely on slowing growth and a firmer US dollar to contain inflation, reducing the chances of near-term rate hikes.

Economic data, meanwhile, supported the chances of a widening recession, with housing news from July poor, and weekly unemployment claims now running at recession levels for the last five weeks. The overall result saw the S&P 500 record a loss of 0.5 percent.

Japan
The Bank of Japan cut its economic assessment for a second straight month, with governor Masaaki stating that growth will likely remain sluggish and that the timing of a recovery might be delayed.

Last week, the TOPIX index fell 2.4 percent – the index’s fourth-consecutive declines – while the Nikkei 225 ended down 2.7 percent, at its lowest close since April.

Europe
In Europe, economic data was relatively light, although somewhat more positive compared to the recent week’s negative headlines. Typical of this was the ZEW survey, in Germany, which suggested that investors’ confidence dropped again in August, but by less than was expected.

UK
In the UK, minutes from the recent Bank of England meeting showed the feeling that any sharp jump in inflation would likely be countered by an equally sharp slowdown in economic activity persuaded the MPC to hold interest rates at 5 percent. Amid fresh signs of economic slowdown, including the downward revision of UK second-quarter GDP, members also released data behind the latest growth forecast, predicting economic contraction in the third quarter of 2008, and only tepid quarterly growth thereafter.

Asia & Developing Markets
Asian stocks fell for their fourth straight week and the regional share price index fell to its lowest level since July 2006, as both technology and bank shares fell. Hong Kong’s Hang Seng index was among the largest fallers, declining by 3.6 percent over the week.

Bonds
The return of inflation concerns saw major bond markets struggle at the end of the week. In the eurozone, expectations that the European Central Bank will raise rates to curb inflation had German bonds on the back foot, while gilts also fell, despite gloomy GDP data strengthening the case for easing.

Currencies
After experiencing a five-week rally, the US dollar fell against the euro and the yen. Despite the turnaround, market expectations continue to suggest gains for the “greenback”, putting last week’s declines down to profit taking.

Commodities
While Brent crude oil has fallen by around 20 percent from summer peaks in excess of USD 135/barrel, an increase of almost 7 percent was recorded last week in response to currency-market fluctuations and worsening geopolitical landscape – namely the US/Russia over Georgia and the ongoing concern over Iran’s nuclear programme.

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.