Global Markets Weekly - 26 April 2010

• Goldman news casts a pall, but positive data brings some recovery. Global equity markets started the week down after the news of charges against Goldman Sachs by US regulators on the previous Friday. However, while equities, commodities and other risk assets all experienced further weak days, they finished the week off their lows, helped by continuing positive news on the economy and profits. Defensive assets, such as sovereign bonds of the leading economies, rallied modestly while the US dollar and Japanese yen received a fillip.
• Economic data remained positive, though this may be increasingly discounted by investors. The IMF again upgraded its forecast for global economic growth this year, from 3.9% published in January, to 4.2%. The economic surveys and leading indicators continue to improve, with gains in the German Ifo survey, euro-zone composite Purchasing Managers’ Index and leading indicators in the US and Canada. The UK recorded another quarter of modest growth with GDP up 0.2%, despite an unusually cold winter. Even the US housing market improved, with new starts, sales and prices all up in March, triggering another surge in lumber prices which are now some 40% up this year. First-quarter US corporate results have also been strong, with some 80% of companies reporting so far having exceeded consensus profit forecasts. Perhaps more importantly, 65% beat revenue expectations.
• Investor concerns centred on political risks. Political uncertainty is a particular sensitivity for investors, as these risks cannot be assessed or hedged in the same way as economic or market volatility. With many markets at new highs, they appeared vulnerable to any reduction in investor risk appetite. Goldman Sachs was the first headline, but there was also US President Obama’s speech pushing for the passage of new financial regulation (though more moderate than many feared). Greece also dominated, with yields on its two-year bonds hitting 10% on Friday ahead of the formal activation of IMF and EU agreements. There was also continuing turmoil in Thailand, while South Korea moved closer to announcing a formal conclusion of its investigation of the sinking of a frigate with the loss of 46 lives. By contrast, the UK general election has ebbed from market concerns as investors become more familiar with the possible outcomes.
• The euro takes the strain as the Greek crisis continues. The euro was a major casualty of the continuing Greek crisis, hitting 11-month lows against the dollar. This does not just reflect short-term concerns over the outcome for Greek debt, but also more strategic concerns about the nature of the currency union. As our chart overleaf shows there is a clear connection between periods of sharp divergence in the yields on sovereign bonds of member states and the value of the euro. We have a strategic negative view on the euro to reflect these concerns.
• Tightening in other emerging markets puts more pressure on China. Monetary policy was tightened further in India to curb domestic and commodity-related inflationary pressures. Measures by emerging economies to cool their booming economies have also led to more pressure on China to revalue the yuan. The head of the Central Bank of Brazil said that a stronger Chinese currency was "absolutely critical for the equilibrium of the world economy," comments that were echoed by the Governor of the Reserve Bank of India. Concerns over tightening continue to hang over Chinese equities, while in Brazil and India, where rates have already been raised, stocks have rallied.

Indices, Interest rates and Inflation

Disclaimer Issued by Coutts & Co, which is authorised and regulated by the Financial Services Authority.

The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. Past performance should not be taken as a guide to future performance. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down.

The information in this document is not intended as an offer or solicitation to buy or sell securities or any other investment or banking product, nor does it constitute a personal recommendation. The information shown is believed to be correct but cannot be guaranteed. Any opinion or forecast constitutes our judgement as at the date of issue and is subject to change without notice. Any Coutts company, or a connected company, its clients and officers may have a position or engage in transactions in any of the securities mentioned.

The analysis in this document has been procured, and may have been acted upon, by Coutts & Co and connected companies for their own purposes, and the results are being made available to you on this understanding. To the extent permitted by law ad without being inconsistent with any applicable regulation, neither Coutts & Co nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such analysis.

Not all products and services offered by the individual Coutts companies are available in all jurisdictions, and some products and services may be available only through particular Coutts companies.

None of the overseas Coutts companies or offices is an Authorised Person subject to the rules and regulations made under the Financial Services and Markets Act 2000 for the protection of investors and depositors, and compensation under the Financial Services Compensation Scheme will not be available in respect of business transacted with them.

• Important Information & FSCS
• Security
• Privacy & Cookies Policy
• Accessibility
• Sitemap