December Market and Economic Update
Global equity indices, led by developed markets, continued their recovery. This came against a backdrop of further falls in government bond yields, signalling growth headwinds and lower inflationary expectations. The latter can partly be explained by further declines in the price of oil, which continued through the month. Whilst the impact of low oil prices is expected to be positive for equity markets, broad emerging market benchmarks and global high yield bonds were notable laggards as a result of their larger exposure to the energy sector.
- Overall, the main global theme continues to be one of sluggish or slowing economic growth across emerging markets, the Eurozone and Japan.
- The Chinese Central bank lowered its benchmark lending rate for the first time in two years in a move to bolster flagging economic activity.
- The European Central Bank (ECB) raised expectations that it was prepared to take further action to increase growth and inflation.
- In Japan, Prime Minister Abe called an early election and promised fiscal stimulus after the economy officially entered recession, following a second consecutive quarter of negative GDP growth.
- Economic data from the US economy was mixed in places, but still supportive. Minutes from the Federal Reserve’s latest meeting showed confidence among policymakers that the US economic recovery was on track, in spite of global growth concerns.
- Falling oil prices are also expected to support US growth (along with much of the world) by boosting consumer spending, even with the prospect of lower investment spend across the energy sector.