May Market CommentaryOverview
Continuing economic uncertainty across the globe is weighing heavily on investors and policy makers alike. We seem to be a long way from a full recovery with many regional economies feeling the pressure of the global squeeze coupled with their own domestic challenges. Whether it be the risk of the bubble bursting in South East Asia, sovereign debt problems across the eurozone or Middle East unrest, there remains plenty of uncertainty on the road to recovery.UK
The FTSE 100 ended April at 6,070 from a starting point of 5,909. The market refused to be shaken by the UK GDP figures, showing only a 0.5%* increase in output over the first quarter of 2011. Manufacturing and services continue to perform but economic growth in the first quarter has been tempered by a sharp fall in construction output.
A rise in interest rates remains one for the speculators with rates being held at 0.5%. There remains pressure for an interest rate rise, having now been held at 0.5% since March 2009. A rise in interest rates will help to keep inflation under control but could derail the fragile economic recovery; a challenge for policy makers.Europe
Germany continue to be the good guys, with sustained growth in economic output and unemployment at its lowest level since 1992. At the other end of the scale, Ireland, Portugal, Greece and Italy continue to be plagued by debt issues. They could soon be joined by Spain on the 'at risk' list, although the Spanish Finance minister has been quick to deny any reports that they be joining their Portuguese neighbours in requesting a bailout.US
Figures released by the US Commerce Department show that growth has slowed slightly over the first three months of 2011, to an annualised rate of 1.8%, down from 3.1% in the previous quarter. One of the main determining factors for this are the sustained high energy prices and it's unlikely that these will fall over the short term. According to the Case Shiller Housing Index, US house prices fell for the 8th consecutive month, reflecting a lack of buyers.Global
As mentioned previously, there is a real risk of unsustainable growth in a number of South East Asian economies with a correction possible. This was reflected by the International Monetary Fund (IMF) who stated that a number of South East Asian economies were in danger of overheating. They did, however, state that it was premature to say this of China. The region remains threatened by rising inflation fuelled by escalating food and house prices.
The global economy is likely to be able to absorb a couple of the smaller regional economies failing but if China went the same way, then the impact would be far more significant.
The Japanese disasters continue to take their toll on their economy with factory output recording its highest ever decline in March, primarily due to disruption to the infrastructure and supply chain.
Global economic sentiment remains mixed, a theme that is likely to continue for the foreseeable future, or at least until positive economic indicators start to show signs of consistency.
* SOURCE: ONS April 2011