By ROBERT HARLEY 04/10/2010
In September global equities markets continued to be volatile with the major indices bouncing back strongly in the first week as positive US private sector job data countered fears of a double dip recession. Stock markets have since remained within a narrow range, data has arguably been marginally supportive, but not sufficiently strong enough to suggest that we are now into a sustainable recovery.
This was supported by signs of a weakening recovery within the core eurozone economies, the spotlight was once again on the peripheral European economies, in particular Ireland, and the potential cost of their financial sector bailout – with estimates reaching €50 Billion for the bailout of Allied Irish Bank alone. We certainly haven’t heard the last of the peripheral sovereign debt woes and expect the issue to come back and haunt the market in the months ahead.
In mid September the US Federal Reserve gave the clearest signal yet that it was prepared to step in and resume its Quantitative Easing program in the absence of a clear pick up in US growth. Global bonds rallied on the news, paring losses from the previous week, whilst the price of gold hit all time highs, breaking through $1,300.
In the currency markets the Japanese authorities intervened to stem the rise of the Yen against the US dollar. The currency markets are likely to become a battle ground going forwards as countries seek to weaken their currency as a means of stimulating their economic recovery through their export sectors. Overall we expect the currencies of asian countries to strengthen against the indebted western nations.
Against this backdrop we continue to believe bond prices remain well supported in the near term, albeit admittedly with 10 year gilts yields under 3%, total returns are likely to be low. If equities can achieve the earnings predicted for 2011, then they look cheap; The US’s quarterly earnings announcements, starting this week, should help to provide some clarity.
Interesting new fund launches over the course of the month include an M&G Inflation Linked Corporate Bond fund, the first of its kind to be made available to retail investors. Given the increased interest in Latin American equities Allianz have responded by launching a ‘single country’ Brazil Fund, we believe this will be the first UK domiciled fund investing exclusively in the country.
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