Equities
November proved to be a good month for equity markets. However concerns around the sustainability of the global economic recovery remain. Markets are supported by the
- falling oil price*
- low inflation expectations
- expectation to delays to monetary tightening i.e. interest rate rises, which are negative for equity and bond markets.
*Lower oil prices also means lower petrol costs so increased consumer spending power and therefore economic growth so, in turn, higher equity markets.
UK and U.S.
The two high-performing economies in the developed world: The U.S. economy expanded by 3.9% on an annualised basis in the third quarter whilst the UK economy expanded by 2.8%. US equity markets (Dow Jones Industrial at just below 18,000 and the S&P 500 at just above 2,000) are consequently at their all-time highs and the UK FTSE 100 (at 6,750) within 3% of its own all-time high.
Europe
German Bundesbank (i.e the Central Bank ) estimates Germany’s 2015 economic growth at just 1% (compare with US & UK) as a result of ongoing geopolitical tensions in export markets Russia and Ukraine. Germany is the economic engine of Europe. However consequent expectations of further interest rate and monetary policy easing boosted European markets last month and so Germany’s DAX equity market is also at an all-time high.(Germany is a huge industrial exporter and benefits from a generally weak Euro). Other European stock markets e.g. France, Italy, Spain are significantly below all-time highs due to continued recessionary / economic challenges.
Japan
Similarly, an announcement to extend the monetary easing programme by effectively ‘printing money’ boosted equity markets by10% in November despite the current recession and multi-decade deflationary environment.The Nikkei at 18,000 is at a multi-year high. (Extraordinarily the all-time high is approximately 38,500 reached 25 years ago, a whole story in itself!)
Commodities
OPEC countries decided not to cut production in the face of increased global supply.This surprised the markets and led to a sharp decline in the oil price at the end of last month to USD 66 per barrel. Oil is down 40% since its June high. Commodities generally have been one of the weakest performing asset classes this year, down just over 10%, not helped by doubts over the sustainability of the global economic recovery.
Gold remains subdued at USD 1200 per ounce.
Foreign Exchange
The US Dollar remains strong against all currencies on the back of strong economic growth and expectations of higher US interest rates and is possibly looking at a 2015 bull market run.
- USD /GBP 1.56 i.e.1 Pound buys only 1.56 US Dollars – a 12 month GBP low.
- USD/EUR 1.23 i.e. 1 Euro buys only 1.23 US Dollars – a 12 month EUR low
The Russian Rouble fell over 10% last month versus other currencies as the oil price tumbled. Over half of Russia’s export revenue comes from oil and gas exports to Europe.
Fixed Income
10 Year bond yields remain particularly low in Europe and Japan and still low by historical standards in US & UK
- US 2.30 %
- UK 2.00%
- Ger 0.80%
- JAP 0.45%
Yield on Russia’s 10 year bonds rose to their highest in 5 years (13 %) on oil / Rouble troubles.
Where to invest your money today, with many equity markets at all time highs and bond yields so low, is a big question addressed in next’s week’s post.
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