Equity market performance diverged, with developed markets advancing and emerging markets pausing.
Developed equity markets registered gains over the week, despite a global sell-off on Monday, triggered by the weakness of US consumer confidence. The rest of the week saw a resumption of gradual gains as the markets recovered their poise. However, the more volatile emerging markets were unable to recoup all their losses and ended the week in negative territory.
The oil price rallied, despite the flat dollar.
The oil price rallied strongly from $68 to $74 over the week. This gain was noteworthy in that it came despite little change in the trade-weighted dollar and some slackening of market optimism and appetite for risk. By contrast, industrial metals paused after a month's strong gains. One feature of the gains in the spot oil price was the flattening of the oil price futures curve, with the premium for future months eroded by the jump in spot prices. This reduces the incentive to hold oil stocks and could signal a reversal of the build-up of inventories over the past year.
The Bank of England's caution contrasts with upbeat consumer data.
After the unexpected announcement that the Bank of England's Monetary Policy Committee was adding a further £50 billion to its quantitative easing measures came a further surprise with the publication of the minutes of the meeting. The minutes revealed that Mervyn King, the Governor of the Bank of England, had voted for even more cash (£75 billion) to be added to the existing programme. This obvious concern over the strength of the economy contrasts with the relatively upbeat news on retail sales and inflation, which showed the UK consumer to be more optimistic.
China is driving growth across Asia...
China's growing importance to the global economy has been demonstrated by how its swift recovery of imports has provided a boost to neighbouring economies, most recently Taiwan. Taiwanese companies have benefited from a series of new deals announced over the past week, led by Chinese PC manufacturer Lenovo, which plans to source $2.7 billion of components from Taiwan as part of its plan to expand in its domestic market.
...while data pointed to an improving outlook in the eurozone and the US.
The European composite purchasing managers' index rose to 50, beating the consensus of 48. That points to a V-shaped recovery in the region, as a number higher than
50 is associated with economic growth. The stronger number implies that the European Central Bank may have to revise up its GDP forecasts for the first time in two years. This matches the picture of strong global macro-economic improvement from earlier in the week. Germany's ZEW index, which reflects investors' and analysts' expectations, jumped from 39.5 to 56.1, the highest level since April 2006. In the US, the August Empire survey, which follows manufacturing conditions in New York, rose to 12.1, from -0.9 in July. That would imply that the August ISM will come in above 50.
Japan returned to growth, but the recovery is likely to be weak.
Japan grew at 0.9% over the second quarter. However, investors received the news with some scepticism, as the Cabinet Office used aggressive assumptions on non-residential investment. The number was boosted by a massive public spending programme, which leads us to expect that growth will continue but at a slower pace in the second half of the year.
Indices, Interest rates and Inflation
|
Close - 21 Aug 09 |
1 Week% |
1 Month% |
3 Months% |
YTD |
|
|
FTSE ALL Share |
2,488 |
2.7 |
8.8 |
12.2 |
12.6 |
|
FTSE 100 |
4,851 |
2.9 |
8.3 |
11.6 |
9.4 |
|
S&P 500 |
1,026 |
2.2 |
7.5 |
15.5 |
13.6 |
|
Nasdaq Composite |
2,021 |
1.8 |
5.5 |
19.2 |
28.2 |
|
DJ Stoxx (Europe) |
255 |
2.7 |
9.3 |
12.8 |
14.4 |
|
Nikkei 225 |
10,238 |
-3.7 |
6.1 |
10.5 |
15.6 |
|
Hang Seng |
20,199 |
-3.3 |
3.6 |
17.4 |
40.4 |
| Official Rates (%) |
Inflation (%) |
Rate announcement |
|||
|
Current |
Sep-09 Forecast |
Dec-09 |
Current |
Next Date |
|
|
US (Fed Funds) |
0-0.25 |
0-0.25 |
0.25 |
-2.1 |
23-Sep |
|
UK (Base rate) |
0.50 |
0.50 |
0.50 |
1.8 |
10-Sep |
|
Euro-zone (Repo Rate) |
1.00 |
1.00 |
1.00 |
-0.7 |
03-Sep |
|
Japan (Call rate) |
0.10 |
0.10 |
0.10 |
-1.8 |
17-Sep |
View the full Global Markets Weekly report (pdf).
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