Monthly Markets Review

News & analysis

Monthly Markets Review Q4 2011

6 January 2012
- Equities made gains in the fourth quarter, but failed to prevent most major markets posting an overall loss for the year. Once again, events in the eurozone dominated market movements.
- After heavy selling in the third quarter, investors regained their risk appetite in October. However, political and economic turmoil in Greece and Italy and growing fear that the debt crisis would spread, saw volatility return in November.
- Hopes for the December EU summit supported equities, but, in what has become a familiar pattern, initial relief that a deal had been struck soon gave way to scepticism regarding the substance and efficacy of the agreement to take a step closer to fiscal union. An encouraging bout of US economic data in the final month of the year helped.
Monthly Markets Review November 2011

6 December 2011
- Having rallied through most of October, volatility returned in November and global equity markets lost ground. In the first half of the month, sentiment was predominantly driven by the political and economic turmoil in Greece and Italy.
- Sentiment deteriorated as Greece proposed a referendum on its bailout package and Italian 10-year government bond yields soared beyond 7% (the level at which debt is considered unsustainable). The events were a precursor to the resignation of both countries' leaders during the month.
- Growing pressure from the bond markets on core European countries and an unsuccessfulbond auction in Germany added to the fear of contagion in the second half of the month.
- Meanwhile in the US, markets were frustrated by the so-called super committee's inability to reach a deal on budget cuts. Still, the month ended on a positive note with markets rallying following co-ordinated action by the world's leading central banks to increase dollar liquidity.
Monthly Markets Review October 2011

4 November 2011
- October proved a positive month for global markets, with investors regaining their risk appetite and markets managing to claw back some of the losses sustained in the previous month.
- Equities rallied ahead of the European summit on the back of hopes that greater political urgency would translate into a deal capable of containing the region’s debt crisis. Despite the lack of detail and little guidance around implementation, the deal was initially greeted with optimism before scepticism began to creep back as the month drew to a close.
- Encouraging data from the US, including the non-farm payrolls, generally strong quarterly earnings results, and September’s retail sales figures also helped, reviving hopes that the world’s largest economy may avoid heading back into recession.
Monthly Markets Review Q3 2011

6 October 2011
- Investor confidence plummeted during the quarter, fuelled by ongoing European political and economic turmoil, disappointing US GDP data and concerns of slowing global growth.
- Heightened risk aversion favoured safe haven assets, with US treasuries, UK gilts and German bunds benefiting from the flight to quality; while global equity markets saw some of the steepest quarterly share price declines since 2008.
- Meanwhile, volatility in the gold price reached its highest level since 2008. Usually seen as a safe haven, the yellow metal tumbled after hitting a high of $1,920 per ounce in September.
- Copper prices, closely correlated with industrial growth and Chinese demand, also slid to a 13-month low amid a widespread sell off across commodities markets, as investors looked to stockpile cash.
Monthly Markets Review August 2011

6 September 2011
- August provided a gloomy backdrop for markets as worries about slowing global growth, a stalling recovery in the US and the sustainability of peripheral European sovereign debt levels, combined to batter investor sentiment during the month.
- Despite US policymakers reaching a compromise deal to extend the federal debt ceiling and stave off default, ratings agency Standard & Poor's deemed the cuts insufficient for the country to maintain its AAA credit rating, and subsequently downgraded the US to AA+.
- In Europe, amid escalating concerns about the state of public finances in peripheral European countries, the European Central Bank (ECB) bought Irish, Portuguese, Spanish and Italian government debt, in an effort to shore up confidence.
- Risk aversion prompted an indiscriminate sell off in equity markets and saw investors flee to safe havens, helping government bond markets outperform, while gold rocketed to a new nominal high of US$1913.50 per ounce during the month.
Monthly Markets Review July 2011

16 August 2011
- With the exception of Japan, global equity markets produced lacklustre returns in July, as macroeconomic issues weighed on sentiment during the month.
- In Europe, wrangling over the bail-out terms for Greece unsettled markets before policymakers reached agreement later in the month, while fears of contagion saw peripheral country debt yields surge.
- US markets were preoccupied with the threat of a ratings downgrade for US Treasuries, as the Democrat and Republican parties struggled to come to a compromise deal to extend the federal debt ceiling and stave off default.
- The uncertainty created by US policymakers’ brinkmanship, along with escalating contagion fears in Europe, prompted a flight to safety. Yields on German and UK government bonds fell while gold hit a record high.
Monthly Markets Review Q2 2011

6 July 2011
- Global equity markets made a strong start to the quarter, as a continued pickup in M&A activity and generally better-than-expected earnings buoyed investors’ hopes for global growth.
- Gains were reversed in May as markets questioned the stability of the global economic recovery and contemplated the deterioration of Greece’s sovereign debt situation.
- However, a strong market rally in the final days of the quarter, after the Greek parliament passed the austerity bill needed to secure additional financial aid, helped equity markets recover some of the lost ground.
- As risk appetite dwindled, bond markets benefited from the flight to safety during the quarter. 10-year yields in the core sovereign bond markets of the US, Germany and UK fell steadily, before climbing sharply in the final days of the quarter as a temporary solution to Greece’s debt situation emerged.
Monthly Markets Review May 2011

6 June 2011
- Global equity markets struggled to find momentum in May amid signs that the pace of global growth was slowing – triggered by indications of weakening emerging market growth, particularly in China. Weaker economic data and renewed fears about sovereign debt loads
  in peripheral Europe combined to unsettle markets during the month.
- The increased risk aversion drove investors into safe haven assets, and global government bonds markets subsequently rallied – driving down bond yields in the US, UK, Germany and Japan. In currency markets, the Swiss Franc made its mark, rising to record highs against both the euro and the US dollar.
- Elsewhere, commodities markets lost momentum, with crude oil suffering one of its largest one-day declines on record. The weakness fuelled speculation that persistent high prices were beginning to take their toll on demand.
Monthly Markets Review April 2011

6 May 2011
- In April, Japan was dealt a blow as additional earthquakes caused further structural damage and hampered efforts to contain the nuclear fallout at Fukushima. Markets in Europe took further sovereign downgrades in their stride, while ratings agency S&P triggered speculation that it could lower its long-term credit rating of the US after instituting a ‘negative’ outlook.
- Despite these dampening effects, global markets posted solid gains over the month (in US dollar terms), as leading economic indicators continued to support a broad-based recovery. Encouraging earnings releases and an uptick in M&A activity also boosted investor confidence.
- In Europe, the central bank hiked interest rates from 1% to 1.25%, following a two-year period when rates remained unchanged at exceptionally low levels. As widely anticipated, the Bank of England left interest rates unchanged at 0.5% in April.
- Returns from international markets, expressed in US dollars, were enhanced as the dollar weakened during the month. On the flipside, the currency weakness had a negative impact on US returns expressed in euro and sterling terms.
Quarterly Markets Review Q1 2011

6 April 2011
- The positive momentum from the fourth quarter of 2010 continued to propel equity markets in 2011, before a cocktail of events conspired to halt the progress. Ongoing unrest in North Africa and the Middle East, further peripheral European sovereign debt downgrades and the fallout from the Japanese earthquake and tsunami, unsettled markets and drove down global equity market indices. Although the quarter was not without its casualties, many markets managed to claw back some of the losses to remain in positive territory overall.
- Robust investor confidence favoured risk assets on the whole. Commodity prices soared, with Middle East tensions continuing to push oil prices higher. Despite periods of strength for safe haven assets, government bonds generally weakened, with investors favouring corporate bonds, particularly high yield.
Monthly Markets Review February 2011

4 March 2011
- Despite snowballing political unrest in North Africa and the Middle East, global markets managed to finish the month in positive territory as broadly positive corporate and economic data, and a resolution to the Egyptian stand-off, boosted investor confidence.
- However, escalating geo-political tension across the region, in the second half of the month, prompted a flight to safety and pushed oil and gold prices higher. Brent crude futures hit a two-year high on the back of the recent conflict in Libya – a significant producer and exporter of crude oil.
- The subject of inflation was never far from the headlines, with soaring commodity prices contributing to inflationary concerns during the month. China continued to apply monetary tightening measures, in a bid to cool its economic growth, while speculation of rate rises in the UK and Europe saw both the euro and sterling strengthen in the second half of the month.
Monthly Markets Review January 2011

8 February 2011
- In January, global equity markets extended fourth-quarter 2010 gains, supported by generally better-than-expected company earnings and well-received peripheral European government bond auctions. The debut bond issue from the European Financial Stability Facility (EFSF) was also met with strong demand.
- However, mounting geopolitical tension in the Middle East, notably Egypt, prompted a pull-back in risk appetite towards the end of the month, in favour of safe-haven assets such as the yen and US treasuries. The turmoil also sparked oil-supply concerns, propelling the Brent Crude oil price to $100 per barrel for the first time since October 2008.
- In Asia, the Chinese economy grew more rapidly than expected in the fourth quarter of 2010 pushing domestic equities to a four-month low, as investors anticipated further anti-inflation action by authorities.
Quarterly Markets Review Q4 2010

10 January 2011
- Global markets were influenced by both positive and negative sentiment during the quarter, but a combination of better-than-expected macroeconomic data and improved prospects for the US economy drove equity market gains overall.
- The quarter was not without its troubles with re-emerging sovereign debt concerns weighing on sentiment in November. However, a second round of US quantitative easing and a more positive outlook for global growth, brought optimism back to the markets.
- Improved risk appetite favoured more cyclical areas of the market, with the materials and energy sectors, in particular, benefiting from soaring commodity prices.
Monthly Markets Review November 2010

7 December 2010
- In contrast to the market gains witnessed in expectation of a further round of US quantitative easing, the reaction in the wake of the announcement itself proved something of a muted affair.
- Rather, sentiment in November was dominated by the fate of the debt-laden Irish economy. Perhaps with the exception of Japan, markets globally failed to remain immune to the turmoil in Ireland and concerns of contagion risk across peripheral Europe. An emergency €85 billion aid package to Ireland did little to improve sentiment.
- Japan was the stand-out performer over the month, benefiting from a pull-back in the yen. Not even concerns over escalating tensions between North and South Korea, and further signs of tightening in China, could derail the market’s performance.
Monthly Markets Review October 2010

5 November 2010
- Expectations of further quantitative easing led markets higher in October, with the eurozone leading equity market gains. Corporate bonds generally outperformed government bonds, while the search for yield continued apace.
- On balance, macroeconomic data proved encouraging. In particular, signs of improvement in US housing, consumer confidence and manufacturing data cheered investors, as did evidence of growth in Europe. In Asia, Chinese manufacturing data accelerated; while in the UK, preliminary GDP growth surprised to the upside.
- The macroeconomic momentum, combined with strength in the corporate sector, provided a fertile environment for ongoing risk trading during the month – albeit at a more subdued pace.
- Risk appetite further strengthened commodity prices in October, while the US dollar continued to decline against most major currencies, in anticipation of another round of quantitative easing.
Quarterly Markets Review Q3 2010

4 October 2010
- It was a volatile quarter for global equity markets, with investor sentiment being driven by fear and greed in equal measure. Following an auspicious start in July, pessimism gripped markets in August, before renewed optimism in September put paid to earlier concerns about slowing economic growth and the prospect of a double-dip recession.
- The rebound ensured quarterly gains across regional equity markets, with Japan proving the only exception as the yen’s continued strength against the dollar weighed on sentiment.
- In currency markets, fears of a stalling recovery in the US pushed the dollar to an eight-month
  low against a basket of major currencies at the end of the quarter. The yen, in particular, continued the surge against the dollar, reaching its strongest level since May 1995. This prompted Japanese authorities to unilaterally sell the yen – the first such move since 2004.
Monthly Markets Review August 2010

3 September 2010
- Global equity markets lost ground during August amid renewed indications that the worldwide economic recovery could be losing steam. The deteriorating health of the US economy and a cooling Chinese economy weighed heavily on global equities.
- Eurozone equities lost momentum as the prospect of a double-dip recession weighed on sentiment, following another round of weak economic data out of the US. The Federal Reserve’s comments that monetary policy would remain accommodative and the European Central Bank’s efforts to play down the risks did little to alleviate investor concerns.
- The US financial markets ended the month in negative territory as weak home sales, high unemployment, and disappointing manufacturing orders weighed on equity markets in the US, with the Dow, S&P 500 and Nasdaq all registering negative returns.
- Japanese equities lost ground on signs that the US economic recovery was deteriorating and on a cooling Chinese economy. Investors were also disappointed with the Central Bank of Japan’s decision not to intervene in currency markets, with the yen’s recent appreciation potentially leading to declining exports and a slowdown in economic growth.
Monthly Markets Review July 2010

4 August 2010
- Following a volatile second quarter, revived risk appetite supported global equity gains in July. Fears of a recovery slump gave way to improved sentiment about the strength of global growth, following some better-than-expected economic data and well-received results from the European bank stress tests.
- European economic data was broadly positive, with a weaker euro driving export-led growth in Germany. Manufacturing data surprised to the upside, as did business and consumer confidence indicators. Although there remained some scepticism about the credibility of the bank stress tests, the results have at least dampened any immediate concerns about peripheral eurozone sovereign debt profiles. Sentiment was similarly positive in the UK as investors increasingly taking the view that the bad news has now been reflected in market valuations; while British manufacturing output continued to grow strongly in July.
- Economic indicators in the US and Japan were more mixed. US domestic demand faltered and higher unemployment in Japan weighed on sentiment; contrasting with solid corporate earnings and general relief in the wake of European bank stress tests.
- Commodities outperformed on the back of rising oil and base metals costs, signaling that, despite lingering concerns about slowing growth, the global economic recovery remains on track.
Quarterly Markets Review Q2 2010

28 July 2010
- The MSCI World Index ended a volatile quarter in negative territory, after the positive momentum, driven by strong earnings results in the first quarter, gave way to revived fears of a recovery slump.
- Concerns that Europe would lead the world into a double-dip recession spurred share price declines across the globe, and marked a sharp reversal in the risk trading that fuelled positive returns in the first quarter. The market volatility sent investors fleeing from equities into the safe haven assets, such as gold and US Treasuries.
- In Asia, downwardly revised Chinese data further compounded the global equities sell-off, propelling the 10-year Treasury yield below 3%. Crude oil suffered its first quarterly decline since the end of 2008, and iron ore has fallen 27% since its peak in April, due to slowing Chinese steel production as demand has weakened in the wake of tighter monetary policy.
- European leaders hammered out a rescue package, while individual countries unveiled sweeping austerity packages to help rein in sovereign debt. The euro continued to slide against the dollar and German consumer confidence levels weakened. However, investors welcomed better-than-expected manufacturing data.
- In the US, reports of sluggish growth in the first quarter dampened risk appetite – new home sales tumbled after a tax credit expired and unemployment continued to dampen household spending, but unemployment figures registered a slight improvement from May to June.
Monthly Markets Review May 2010

31 May 2010
- The MSCI World index delivered a negative return in May against a background of heightened concerns about eurozone sovereign debt (although markets recovered some ground towards the end of the period). Investor confidence was also impacted by a unilateral move from the German financial regulator to ban the naked short selling of various securities, while concerns about policy tightening in China contributed to a fall in commodity prices.
- The ongoing instability in the euro area prompted European Union finance ministers, central bankers and the International Monetary Fund to hammer out a rescue package to the tune of €750 billion. However, fears of contagion risk and the uncertainty surrounding the implementation of required austerity measures continued to plague markets.
- Elsewhere, uncertainty surrounding the US financial reform bill weighed on the financials sector. Fears of a politicised crackdown on banks and financial markets unsettled markets, sending share prices reeling and currency markets into disarray.
- Disappointing US jobless data revived fears that the economic recovery could prove shortlived, driving investors into safe haven assets. In addition, eurozone consumer confidence levels hit a one-year low, but better-than-expected German manufacturing data injected some much need optimism.
Monthly Markets Review April 2010

12 May 2010
- The MSCI World index delivered a broadly flat return in US dollars over the month. The improvement in investor sentiment, seen in March, continued into the early weeks of April. However, markets gave back some ground in the latter part of the month as concerns over fiscal difficulties in the eurozone resurfaced, with rating agency Standard & Poor’s (S&P) downgrading the sovereign credit ratings of Greece, Portugal and Spain. Fears that the contagion would spread throughout Europe weighed heavily on equities.
- Markets also sold off following news that Goldman Sachs was the first major Wall Street firm to be accused by the Securities and Exchange Commission (SEC) of fraud connected to the collapse of the subprime mortgage market.
- Global economic data generally improved. US consumer spending increased at the fastest pace for three years in the first quarter of 2010. In the eurozone, strong industrial production growth partly offset weak retail activity and a construction sector plagued by bad weather in the first few months of 2010.
Quarterly Markets Review Q1 2010

12 April 2010
- Although global equities endured a volatile quarter, the MSCI World Index finished the period in positive territory due to generally improving macroeconomic data and mostly positive corporate earnings results. Encouragingly, many companies are now beginning to see revenue growth.
- A whole host of countries released positive growth data, showing that they exited recession in the final quarter of 2009. In particular, the US reported stronger-than-expected 5.7% annualised fourth quarter GDP growth. However, other economic releases were mixed, with US employment continuing to lag and housing data weak.
- Volatility in equity markets, worldwide, persisted as investors digested contagion risks arising from a potential sovereign debt crisis in Europe, the announcement of President Obama’s bank regulation proposals and worries over the impact of further monetary tightening in China. China made a second successive 50 basis points hike in the required reserve ratio, which many believe to be the start of significant monetary tightening.
- Credit outperformed government bonds as corporate bonds continued to experience an excess of buyers over sellers.
Monthly Markets Review February 2010

9 March 2010
- Global equities had a volatile start to 2010, with initial gains reversed by the end of January. Favourable economic data from the US and China in the first half of the month brightened the prospects for global economic recovery. However, optimism receded in the second half thanks to less positive US data including mixed earnings releases, disappointing employment figures and a setback in the nascent housing recovery.
- The MSCI World Index finished lower overall, with sentiment shifting on the back of continued concerns about sovereign risk in the euro area, the prospect of monetary tightening in China and the announcement of President Obama’s bank regulation proposals.
- With the US dollar rising, commodity-names suffered in particular, but most sectors proved weaker as investors questioned the pace of the worldwide economic recovery.
- Credit outperformed government bonds and cash as corporate bonds continued to experience an excess of buyers over sellers
Monthly Markets Review January 2010

12 February 2010
- Global equities had a volatile start to 2010, with initial gains reversed by the end of January. Favourable economic data from the US and China in the first half of the month brightened the prospects for global economic recovery. However, optimism receded in the second half thanks to less positive US data including mixed earnings releases, disappointing employment figures and a setback in the nascent housing recovery.
- The MSCI World Index finished lower overall, with sentiment shifting on the back of continued concerns about sovereign risk in the euro area, the prospect of monetary tightening in China and the announcement of President Obama’s bank regulation proposals.
- With the US dollar rising, commodity-names suffered in particular, but most sectors proved weaker as investors questioned the pace of the worldwide economic recovery.
- Credit outperformed government bonds and cash as corporate bonds continued to experience an excess of buyers over sellers

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