The independent Office for Budget Responsibility (OBR) updated its forecasts for UK economic growth at the end of November. Although the economy is expected to continue its expansion, the OBR expects the recovery to be a “slower pace than in the recoveries of the 1970s, 1980s and 1990s”.
It also expects the economy to grow by 1.8% this year and 2.1% next year, warning that government spending cuts are likely to make growth “sluggish” over the medium term. In comparison, the Organisation for Economic Cooperation & Development expects the UK economy to expand by 1.8% this year and by 1.7% in 2011. The economy expanded by 0.8% during the third quarter of 2010.
Minutes from the Monetary Policy Committee’s November meeting showed continuing divisions between policymakers, with one calling for an increase in interest rates while another voted for further quantitative easing. Inflation remained well above the Bank of England’s 2% target, reaching 3.2% during October. According to a recent Inflation Report, the Bank believes inflation will remain high during 2011, but expects it to move below 2% by 2013.
The rate of unemployment remained high, falling only slightly over the third quarter to reach 7.7%. The OBR expects unemployment to peak at just over 8% of the labour force during 2011. Retail sales increased during October, month on month – up 0.5% and boosted by activity at non-food stores – although they still fell 0.1% year on year. Sales are likely to rise before 2010 ends, as shoppers seek to beat January’s rise in VAT. According to the Nationwide Building Society, consumer confidence plumbed its lowest depths since March 2009 during October, and consumers appear increasingly pessimistic about prospects for their household income.
Demand for bond funds remained strong among UK investors during October, according to recent data released by the Investment Management Association (IMA). Bonds retained the top spot as the most popular asset class for a fourth month, although Global Bonds was knocked off its position as the best-selling IMA sector by Global Emerging Markets, ranking instead as the third most popular sector during October.
Nevertheless, all IMA bond sectors were in favour during the month – Global Bonds, Steling Strategic Bond and Sterling Corporate Bond led the field while the Gilt and High Yield sectors also experienced net inflows. That said, the attractions of pan-European corporate bonds are likely to have been adversely affected by concerns over the ongoing debt crisis in Europe.
Wednesday, 15 December 2010
Investors more confident about US recovery
Although share prices in general dropped around the world during November, US stockmarkets fell less heavily than many European ones. The Dow Jones Industrial Average index declined 1% over the month while the S&P 500 index fell 0.2%.
Medium-sized and smaller companies performed better than larger companies during November, as investors became more sanguine about prospects for the US economic recovery. Meanwhile car manufacturer GM, which filed for bankruptcy last year, returned to the stockmarket via an IPO that raised more than $20bn (£12.6bn).
According to recent figures released by the Investment Management Association, North American equity funds experienced net outflows during October amid some uncertainty about the speed and stability of the economic recovery.
Nevertheless, US chief executive officers appear to have become increasingly confident about the outlook for economic conditions and prospects for sales growth and corporate spending, and the Young Presidents’ Organization index of sentiment rose in October. Meanwhile, the Organisation for Economic Cooperation & Development (OECD) expects the US economy to expand by 2.7% in 2010, 2.2% in 2011 and 3.1% in 2012.
In rising 0.6% year on year during October, US inflation registered its smallest annual increase since records started in 1957. The US Federal Reserve announced plans to expand its asset purchasing programme by $600bn, having found that progress towards its key objectives has been “disappointingly slow”. The news received a mixed reception and was not welcomed by leaders in some countries, who fear the measures will devalue the US dollar and cause excess capital to flood into their economies, providing unwelcome fuel for inflation.
The US dollar was boosted by signs economic recovery in the US is gathering momentum. Retail sales rose more strongly than expected during October, increasing by 1.2% on the month and by 7.3% year on year. Total sales were boosted by strong growth in vehicle sales, and the news cheered investors looking for evidence the economy is continuing to recover.
The National Retail Federation expects sales during November and December to increase by 2.3% year on year, their strongest annual increase since 2006. Meanwhile, consumer confidence rose to its highest level for five months during November, boosting hopes the economic recovery will remain intact. Meanwhile the US trade deficit contracted more quickly than expected during September, boosted by strong growth in exports and a weak dollar that makes US products cheaper for overseas buyers.
Medium-sized and smaller companies performed better than larger companies during November, as investors became more sanguine about prospects for the US economic recovery. Meanwhile car manufacturer GM, which filed for bankruptcy last year, returned to the stockmarket via an IPO that raised more than $20bn (£12.6bn).
According to recent figures released by the Investment Management Association, North American equity funds experienced net outflows during October amid some uncertainty about the speed and stability of the economic recovery.
Nevertheless, US chief executive officers appear to have become increasingly confident about the outlook for economic conditions and prospects for sales growth and corporate spending, and the Young Presidents’ Organization index of sentiment rose in October. Meanwhile, the Organisation for Economic Cooperation & Development (OECD) expects the US economy to expand by 2.7% in 2010, 2.2% in 2011 and 3.1% in 2012.
In rising 0.6% year on year during October, US inflation registered its smallest annual increase since records started in 1957. The US Federal Reserve announced plans to expand its asset purchasing programme by $600bn, having found that progress towards its key objectives has been “disappointingly slow”. The news received a mixed reception and was not welcomed by leaders in some countries, who fear the measures will devalue the US dollar and cause excess capital to flood into their economies, providing unwelcome fuel for inflation.
The US dollar was boosted by signs economic recovery in the US is gathering momentum. Retail sales rose more strongly than expected during October, increasing by 1.2% on the month and by 7.3% year on year. Total sales were boosted by strong growth in vehicle sales, and the news cheered investors looking for evidence the economy is continuing to recover.
The National Retail Federation expects sales during November and December to increase by 2.3% year on year, their strongest annual increase since 2006. Meanwhile, consumer confidence rose to its highest level for five months during November, boosting hopes the economic recovery will remain intact. Meanwhile the US trade deficit contracted more quickly than expected during September, boosted by strong growth in exports and a weak dollar that makes US products cheaper for overseas buyers.
Brazil and India perform badly during November
The major ‘Bric’ markets of Brazil, Russia, India and China fell by 3.6% in US dollar terms, pulled lower by India and Brazil.
After generating relatively strong returns during October, share prices in emerging markets fell back during November. The MSCI Emerging Markets index declined by 2.7% in US dollar terms during the month, and underlying markets showed a mixed performance.
The Organisation for Economic Cooperation & Development (OECD) reduced its forecast for global growth during 2011 from 4.5% to 4.2%, but believes growth in many emerging economies will remain relatively strong.
The OECD expects China’s economy to expand by 10.5% during 2010 and by 9.7% in 2011, while India is forecast to grow by 9.1% this year and 8.2% next year. Russia is expected to generate economic growth of 3.7% in 2010, accelerating to 4.2% in 2011. Meanwhile, Brazil’s economy is tipped to expand by 7.5% in 2010, and then to slow to 4.3% in 2011. The latter’s Bovespa index fell during November, dropping more than 4%.
News the US Federal Reserve had decided to expand its asset purchasing programme by $600bn (£380bn) was not universally well received by leaders and policymakers in developing countries, who fear the measures are likely to fuel ongoing inflationary pressures.
Meanwhile, friction over exchange rates continued between the US and China. During the month, the OECD urged China to allow its currency to appreciate, commenting: “The stability of the domestic economy would be enhanced if the exchange-rate policy were more oriented to allowing appreciation.”
In China, the rate of inflation surged during October to 4.4%, compared with a rise of 3.6% during September. In order to combat inflation, China twice increased the amount of funds that lenders must hold in reserve during the month. The Shanghai Composite Index fell by 5.3% during November.
India’s economy expanded by an annualised 8.9% between July and September and policymakers increased the country’s interest rates by 25 basis points to 6.25% in an attempt to cool inflation. Nevertheless, the central bank did its best to reassure investors by advising that the likelihood of further rate increases in the “immediate future is relatively low”. Reassuringly, later in the month, the Central Statistical Office reported the rate of inflation had slowed during October.
According to recent data released by the Investment Management Association, the Global Emerging Markets sector was the best-selling fund sector during October, experiencing its highest-ever monthly sales.
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After generating relatively strong returns during October, share prices in emerging markets fell back during November. The MSCI Emerging Markets index declined by 2.7% in US dollar terms during the month, and underlying markets showed a mixed performance.
The Organisation for Economic Cooperation & Development (OECD) reduced its forecast for global growth during 2011 from 4.5% to 4.2%, but believes growth in many emerging economies will remain relatively strong.
The OECD expects China’s economy to expand by 10.5% during 2010 and by 9.7% in 2011, while India is forecast to grow by 9.1% this year and 8.2% next year. Russia is expected to generate economic growth of 3.7% in 2010, accelerating to 4.2% in 2011. Meanwhile, Brazil’s economy is tipped to expand by 7.5% in 2010, and then to slow to 4.3% in 2011. The latter’s Bovespa index fell during November, dropping more than 4%.
News the US Federal Reserve had decided to expand its asset purchasing programme by $600bn (£380bn) was not universally well received by leaders and policymakers in developing countries, who fear the measures are likely to fuel ongoing inflationary pressures.
Meanwhile, friction over exchange rates continued between the US and China. During the month, the OECD urged China to allow its currency to appreciate, commenting: “The stability of the domestic economy would be enhanced if the exchange-rate policy were more oriented to allowing appreciation.”
In China, the rate of inflation surged during October to 4.4%, compared with a rise of 3.6% during September. In order to combat inflation, China twice increased the amount of funds that lenders must hold in reserve during the month. The Shanghai Composite Index fell by 5.3% during November.
India’s economy expanded by an annualised 8.9% between July and September and policymakers increased the country’s interest rates by 25 basis points to 6.25% in an attempt to cool inflation. Nevertheless, the central bank did its best to reassure investors by advising that the likelihood of further rate increases in the “immediate future is relatively low”. Reassuringly, later in the month, the Central Statistical Office reported the rate of inflation had slowed during October.
According to recent data released by the Investment Management Association, the Global Emerging Markets sector was the best-selling fund sector during October, experiencing its highest-ever monthly sales.
Vist our main website http://www.sterlingfs.co.uk/home/
Japanese companies buck global trend
Positive economic data from the US provided a much-needed boost for investor sentiment in Japan during November. The Nikkei 225 Stock Average index bucked the global trend by rising during the month while most major equity markets registered declines.
The Nikkei 225 rose by 8% over November as a whole, also reaching its highest closing point since June during the month. The yen softened during November, boosting investor sentiment towards Japanese exporters although, according to recent data released by the Investment Management Association, Japanese equity funds experienced net outflows during October.
Japan’s economy expanded more quickly than expected during the third quarter, rising by 3.9% year on year. However, the strong yen and its effects on export activity are likely to have an adverse effect on growth during the fourth quarter. Machinery orders declined by 9.2% during September compared with August. A survey of Japanese machinery manufacturers suggested they expect total machinery orders to fall by 2% during the fourth quarter of 2010 compared with the third quarter, while orders from the private sector are expected to fall by 9.8%.
In a speech delivered during November, the governor of the Bank of Japan (BoJ) warned that the pace of recovery is likely to remain slow “for the time being”, held back by sluggish economic growth elsewhere in the world and the strength of the yen. Nevertheless, he expects to see “a moderate recovery” during fiscal 2011 as export growth improves and corporate and household spending picks up. According to minutes from the BoJ’s October meeting, board members suggested purchases of real estate investment trusts and exchange-traded funds might boost investor sentiment and hence provide a catalyst for transactions.
The Organisation for Economic Growth & Cooperation (OECD) expects Japan’s economy to expand by 3.7% during 2010, before decelerating sharply to register growth of just 1.7% in 2011. The OECD gave a relatively downbeat assessment of Japan’s economic prospects, believing the current environment of price deflation and high unemployment is likely to persist.
Consumer confidence declined to its lowest level for seven months during October, and retail sales fell for the first time this year, dropping by 0.2% year on year. Deflation remains a problem, and prices fell by 0.6% year on year during October. Nevertheless, the Governor of the BoJ expects annualised growth in inflation to enter positive territory during fiscal 2011 as the balance of supply and demand improves.
The Nikkei 225 rose by 8% over November as a whole, also reaching its highest closing point since June during the month. The yen softened during November, boosting investor sentiment towards Japanese exporters although, according to recent data released by the Investment Management Association, Japanese equity funds experienced net outflows during October.
Japan’s economy expanded more quickly than expected during the third quarter, rising by 3.9% year on year. However, the strong yen and its effects on export activity are likely to have an adverse effect on growth during the fourth quarter. Machinery orders declined by 9.2% during September compared with August. A survey of Japanese machinery manufacturers suggested they expect total machinery orders to fall by 2% during the fourth quarter of 2010 compared with the third quarter, while orders from the private sector are expected to fall by 9.8%.
In a speech delivered during November, the governor of the Bank of Japan (BoJ) warned that the pace of recovery is likely to remain slow “for the time being”, held back by sluggish economic growth elsewhere in the world and the strength of the yen. Nevertheless, he expects to see “a moderate recovery” during fiscal 2011 as export growth improves and corporate and household spending picks up. According to minutes from the BoJ’s October meeting, board members suggested purchases of real estate investment trusts and exchange-traded funds might boost investor sentiment and hence provide a catalyst for transactions.
The Organisation for Economic Growth & Cooperation (OECD) expects Japan’s economy to expand by 3.7% during 2010, before decelerating sharply to register growth of just 1.7% in 2011. The OECD gave a relatively downbeat assessment of Japan’s economic prospects, believing the current environment of price deflation and high unemployment is likely to persist.
Consumer confidence declined to its lowest level for seven months during October, and retail sales fell for the first time this year, dropping by 0.2% year on year. Deflation remains a problem, and prices fell by 0.6% year on year during October. Nevertheless, the Governor of the BoJ expects annualised growth in inflation to enter positive territory during fiscal 2011 as the balance of supply and demand improves.
The EU and IMF bailout Ireland
The MSCI Europe ex UK index fell by 4% in euro terms during November as Ireland’s debt crisis dominated the news. Nevertheless some markets within the region performed well and, in Germany, the DAX index generated positive returns over a month in which it reached a two-year high.
Struggling under the weight of its massive budget deficit, Ireland capitulated and approached the European Union and International Monetary Fund for a financial bailout worth €85bn (£72bn), of which. €50bn will go towards government spending and €35bn will be used to support Ireland’s ailing banking sector. An average interest rate of 5.8% will be paid on the loan. Ireland then announced measures to reduce its deficit, including spending cuts, a reduction in the minimum wage and higher taxes – however, the country’s low rate of corporation tax remains unchanged.
Although there was some relief the uncertainty surrounding Ireland’s predicament had been eased, November’s events fuelled concerns about other heavily indebted economies within the eurozone. The euro weakened as investors avoided the region’s assets amid escalating fears the debt crisis will deepen and spread, derailing the eurozone’s economic recovery.
The eurozone’s economy expanded 1.9%, year on year, during the third quarter of 2010. The Organisation for Economic Cooperation & Development (OECD) now expects the grouping’s economy to expand by 1.7% in 2010 and 2011 and by 2% in 2012. Government spending cuts and tax increases in some eurozone nations are likely to hold back growth across the region as a whole and, warned the OECD, “the pace of recovery is likely to be muted”.
Prices across the eurozone rose by 1.9% during October, compared with 1.8% in September, while unemployment reached 10.1% during October, compared with 10.0% the month before. Unemployment in the region is highest in Spain, with an unemployment rate of 20.7%.
Over 2010 as a whole, the OECD expects Spain’s economy to contract by 0.2%, while Germany’s is forecast to expand by 3.5%. Greece is expected to shrink by 3.9% this year and 2.7% next year, before returning to growth in 2012. Portugal’s economy is tipped to expand by 1.5% this year and to contract by 0.2% next year. The OECD warned that Portugal must “strictly” implement its plans to cut its budget deficit.
According to recent data released by the Investment Management Association, funds within the Europe excluding UK sector experienced net outflows during October, although European Smaller Company funds proved slightly more popular.
Struggling under the weight of its massive budget deficit, Ireland capitulated and approached the European Union and International Monetary Fund for a financial bailout worth €85bn (£72bn), of which. €50bn will go towards government spending and €35bn will be used to support Ireland’s ailing banking sector. An average interest rate of 5.8% will be paid on the loan. Ireland then announced measures to reduce its deficit, including spending cuts, a reduction in the minimum wage and higher taxes – however, the country’s low rate of corporation tax remains unchanged.
Although there was some relief the uncertainty surrounding Ireland’s predicament had been eased, November’s events fuelled concerns about other heavily indebted economies within the eurozone. The euro weakened as investors avoided the region’s assets amid escalating fears the debt crisis will deepen and spread, derailing the eurozone’s economic recovery.
The eurozone’s economy expanded 1.9%, year on year, during the third quarter of 2010. The Organisation for Economic Cooperation & Development (OECD) now expects the grouping’s economy to expand by 1.7% in 2010 and 2011 and by 2% in 2012. Government spending cuts and tax increases in some eurozone nations are likely to hold back growth across the region as a whole and, warned the OECD, “the pace of recovery is likely to be muted”.
Prices across the eurozone rose by 1.9% during October, compared with 1.8% in September, while unemployment reached 10.1% during October, compared with 10.0% the month before. Unemployment in the region is highest in Spain, with an unemployment rate of 20.7%.
Over 2010 as a whole, the OECD expects Spain’s economy to contract by 0.2%, while Germany’s is forecast to expand by 3.5%. Greece is expected to shrink by 3.9% this year and 2.7% next year, before returning to growth in 2012. Portugal’s economy is tipped to expand by 1.5% this year and to contract by 0.2% next year. The OECD warned that Portugal must “strictly” implement its plans to cut its budget deficit.
According to recent data released by the Investment Management Association, funds within the Europe excluding UK sector experienced net outflows during October, although European Smaller Company funds proved slightly more popular.