Investment Outlook - A Monthly Round-Up Of Global And Local Market Trends

Investors remained in a cautious mood during June as concerns over events in Europe, a sharp slowdown in China and the looming US 'fiscal cliff' continued to weigh heavily on sentiment.

World

Recent events in Europe, including the victory of Antonis Samaras and his pro-bail-out party in the rerun Greek general elections, have done little to reassure global financial markets. Political developments have so far failed to address the underlying debt, growth and competitiveness issues facing the region, and hopes of an improvement going into the latest summit meeting of European leaders on 28-29 June were not high. The European crisis has clearly begun to impact on the world economy, as well as, equally disturbingly, on companies' sales growth. Danone, the French yoghurt maker, for example, issued a surprising profits warning as consumers cut back on what are normally staple products. World markets responded positively, however, at the end of the month to a provisional agreement by Europe's leaders at their summit to introduce new bail-out funding arrangements for Spanish banks.

UK

A further fall in inflation in May was a welcome surprise in a continuingly bleak economic environment. The headline consumer prices inflation rate has fallen to 2.8% from over 5% in September last year, driven mainly by a sharp fall in oil and commodity prices. A recent spike in retail sales was primarily attributable to petrol sales returning to normal levels; we have yet to see any real confidence returning to the high street. With inflation heading back towards the Monetary Policy Committee's (MPC) 2% target level, policymakers are beginning to see the need for further monetary stimulus. Four members of the MPC, including Sir Mervyn King, the Governor, voted for another £50bn of asset purchases at the most recent meeting. Further quantitative easing (QE) is likely in the next month or two. Chancellor George Osborne announced plans for a scheme designed to help cut bank's funding costs, claiming it could support around £80bn new loans to the wider economy. The concern for investors is whether UK equity markets have already factored in these positive signs of more effective policymaking. With banking and mining stocks making up a large proportion of the UK market, the ongoing Spanish banking crisis and the continued slowdown in Chinese growth, make the UK equity market vulnerable on the downside the short term. We continue to believe that the poor GDP growth...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT