Global Market Update

Equity markets appeared to finally find the floor in mid-July, after sliding since May, and have delivered steady, if lumpy, growth since. Within the sectors, leadership switched with a rebound in financials and deterioration in the price of energy and material stocks.

The fall in energy and material stocks came on the back of some of the biggest monthly declines in commodities for decades. Oil peaked at around $145 a barrel in mid-July before sliding to $124 at the end of the month and down again to $111 a barrel at the end of August. This eased global inflation pressures, but spelt bad news for oil shares. Gold also took a tumble as the dollar strengthened. The price peaked at around US$1,000 in March and peaked again just below that point in July. However, August saw it fall back through $800 as speculators left the market.

Financials improved on the back of stronger performance from key US banks such as JP Morgan and State Street. Investors are increasingly aware that banks which weather the sub-prime storm may emerge with increased market share as their weaker competitors fall by the wayside.

Developed markets were given a boost towards the end of the month with a surprise jump in US GDP figures. The US economy rebounded with a 3.3% rise in the second quarter, buoyed by strong exports and weak imports. The Department of Commerce had originally predicted a rise of just 1.9%. The figures came in spite of persistent rumours of a large scale banking failure and ongoing problems at mortgage groups Fannie Mae and Freddie Mac.

However, just as escaping recession seemed a real possibility for the US, the economic picture in the UK and Eurozone weakened. The UK showed no growth between April and June, ending 15 years of consecutive rises in GDP (source: Office of National Statistics). The Eurozone contracted by 0.2%, the first time since its creation in 1999. The largest economies of France and Germany both saw falls in GDP, yet high Eurozone inflation persisted; making interest rate cuts from the ECB increasingly unlikely.

Emerging markets compounded their dismal start to the year. The MSCI China Index dipped over the month, despite the Olympics and the MSCI Brazil Index followed suit. The only bright spot was India, which rebounded a little in spite of weaker growth data. Even though commodity prices are lower, inflation continues to exert pressure in these markets.

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