Offshore Capitalist

Rathbones Economic and Market review – Julian Chillingworth

Economic and Market Review - Key points for August 2009

  • Continuation of ‘office boy rally’
  • Equity and bond markets hit fresh highs
  • Interest rates to stay lower for longer
  • Improved economic data, globally
  • Bank of England in surprise QE extension

UK

Activity in the UK market mirrored that of most major markets, putting in a very strong performance. Indeed, August saw the FTSE 100 rocket 14% since the end of June – its biggest summer run in 25 years. The index was up 6.5% on the month, led by banks and oils. However, the Bank of England’s announcement of a £50 billion extension to its quantitative easing program caught out investors and raised concerns for some about the fragility of the UK economy and the financial system.

Global Commentary

Over August, the Dow Jones Industrial Average was up 3.5%; Europe +5.4%; Japan +1.3%, and the Emerging Markets +0.1%. A stellar month for most markets ended lower as investors fretted over whether levels had got ahead of themselves following a sell-off in China. The Shanghai Composite dropped 6.7% in one day on fears of a contraction in bank lending, meaning a fall of 23% in August – technically bear market territory. Oil and commodity stocks were also down on these fears. Demand for oil was particularly high, pushing both Brent and WTI through the $70 barrier. Globally, government bond markets did well, with the UK outperforming (the 10-year Gilt yield fell 25 basis points). Corporate bond spreads also continued to tighten, reflecting renewed risk appetite and an expectation that the worst of the recession is behind us. The rise of both equity and bond prices confounded some observers, although the more usual inverse relationship should reassert itself in future.

Investment Outlook

There are, undoubtedly, grounds for optimism. We are in a better situation than we were 12 months ago, and the process of recovery is in place. Positive sentiment has already driven the market through the 5000 barrier. However, we are still mindful that this is a very different world now, and different rules must apply. The impact of major adjustments must not be underestimated. As ever, certain businesses will win out, and they will be the ones who sell the products that people need, and in doing so, generate the cash to finance their own growth. It is these businesses that we will be targeting.

via Economic and Market review – Monthly market commentary from Julian Chillingworth .

Related posts:

  1. Templeton China – Market Commentary
  2. Pound Rises Against Euro as Recovery Optimism Gathers Momentum
  3. Near term correction possible, but emerging market investors need a longer term view
  4. Reasons to sell out of emerging markets?
  5. The Conference Board Leading Economic Index™ (LEI) for the U.S. Improves Again
  6. “Economic Pulse” Reports Explore Strength and Stability of Regional Property Markets
  7. UK commercial property market makes comeback
  8. China rounds on U.S. rates as global economic risk
  9. Bear market rally nearing its end, says Barry Ritholz
  10. Recovery still too timid to halt rising unemployment, says OECD Economic Outlook
  11. Global ETF Assets Under Management Hit All Time
  12. An Emerging Market Bond Fund
  13. Sell bonds to hold cash and equities, urges Barclays star
  14. Survey: 2010 Will Be Buyers’ Market for Commercial Real Estate
  15. Emerging-Market Rally to Extend to 2010
  • Welcome to Offshore Capitalist

    Do dramatic financial headlines every day drive you crazy? Forget them! Drop by Offshore Capitalist every now and then to catch the useful stuff.