March 2012 Market Commentary
On Monday February 27th the German Bundestag approved the Greek bailout by 496 votes to 90. A few days earlier consent had finally been wrung from the Greek politicians, and the €130bn bailout now looks to be in place. Is the Greek debt crisis – the constant theme running through this monthly review – over at last? You would be unwise to bet on it. The move is unpopular with the German electorate (who recognise that they are largely going to pay for it): unpopular in Greece (where the far left are making significant gains in opinion polls) – and still looked on sceptically by many market commentators. Expect to see the words ‘Greece’ and ‘crisis’ in future reviews.
Perhaps anticipating the eventual settlement – for now – of the problems in Europe, it was a generally positive month for world stock markets, with all the major markets again moving forward, although they generally failed to match the significant gains made in January.
There was the usual mixture of good and bad news – stronger than expected jobs growth in the US; a fourth consecutive month of declining exports in China – but that is in welcome contrast to say, six months ago when the news was almost unremittingly bad.
The UK stock market moved ahead during February, finishing the month at 5,872 for a rise of just over 3%. However, the month was not without its low points, as the arguments about reform of the NHS rumbled on. Disturbingly, the Coalition partners appear to hold directly opposing views.
There was bad news for the UK High Street, with the majority of news outlets reporting on the number of empty shops in the UK. The Guardian reported that the traditional British High Street was in a “death spiral.”
Worrying news as well for the UK service sector, which accounts for two-thirds of economic activity. The CBI reported a slowdown for the three months ending in January. Consumer services, covering hotels, bars and restaurants were particularly badly hit, in a period which included Christmas and New Year. Unemployment also continued to edge upwards, reaching 2.67m. The unemployment rate is now 8.4%, the highest for 16 years.
Just to be on the safe side the Bank of England pumped another £50bn into the economy. With Barclays being ordered to pay £500m in tax they had previously tried to avoid, at least there’s only £49.5bn for the rest of us to find…
In the same way that the Greek debt crisis is a recurring theme of these monthly reviews, so are our old friends “credit warning” and “downgrade.” The ratings agencies seemingly take it in turns to issue the bad news. In February it was Moody’s who stepped up to the plate, warning of a negative outlook for Austria, France and the UK. Italy, Portugal, Spain and a handful of smaller countries had their credit ratings cut.
In France, President Sarkozy launched his bid for re-election: not, as you might expect, with a statesmanlike speech on the debt crisis, but with his first tweet. Rather more seriously, the G20 said that Europe needed yet more money in its bailout pot. You get the feeling that the day on which the German taxpayer says ‘no more’ cannot be far away.
In keeping with the general mood, however, all the European exchanges (with the exception of Spain) rose during February. The German DAX index turned in an almost identical performance to the FTSE, rising by a little over 3% to finish the month at 6,856. France and Italy both rose, and even the Greek stock market managed a gain of 0.54% on the month.
Unfortunately this relatively good news wasn’t enough to prevent Standard & Poor’s stepping in at the end of the month and downgrading Greek debt yet again, effectively giving it junk bond status.
Having looked nailed on to be the Republican nominee last month Mitt Romney has faltered recently and now ‘Super Tuesday’ on March 6th has become pivotal in the race to oppose Obama. The GOP will no doubt be hoping ‘Super Tuesday’ on March 6th clarifies the situation: if not, expect to hear more talk of Jeb Bush emerging as a ‘unity candidate.’
The economic news continued to be largely positive with the US creating 243,000 new jobs in January. This was well ahead of the estimated 150,000, with 50,000 of the new jobs being in factories. Unemployment fell to 8.3%, all of which is good news for President Obama. Interestingly, Ronald Reagan won his landslide second victory with unemployment at 7.5%.
On February 21st the Dow Jones index broke through the 13,000 barrier for the first time since the banking crisis. It ended the month at 12,952, a gain of 2.53% since the end of January.
The month started badly in Japan with Sony announcing annual losses of £1.8bn. Incoming chief Kazuo Hirai made an early bid for the understatement of the month award by saying the company felt a “slight sense of crisis.”
Japan’s retail sales rose more than had been expected in January, boosted by a surge in car sales as government subsidies on energy efficient vehicles lifted demand. Overall, though, the Japanese economy shrank by 2.3% in the final three months of 2011, much worse than the 1.4% that had been anticipated: exports were not helped by the continuing strength of the yen and the floods in Thailand.
In China, the manufacturing sector contracted in February for the fourth straight month: exports orders dipped sharply thanks to the continuing problems in Europe. Neither was there much sign of China helping Europe through the debt crisis. Despite meeting Angela Merkel, Chinese Premier Wen Jiabao was disinclined to act. There is the strong suggestion that rather than simply pump money into the banking system, the Chinese would prefer to buy physical assets in Europe.
The Far Eastern stock markets comfortably outperformed Europe and the US during February – China was up 6.77%, Hong Kong 7.54% and Japan produced a stellar performance, rising by 10.58% in the month.
In general the emerging economies couldn’t match the rises in the Far East, but Brazil, India and Russia all managed gains of around 5%. There were impressive performances from some of the smaller European countries: Finland was up by just under 8% and Denmark managed a double-digit rise. It will be interesting to watch the performance of this sector in the months ahead.
But the star performance of the month was turned in by our old friend Venezuela: shrugging off any worries about President Chavez’s surgery in Cuba, the stock market rose by 16.5% in February.
Musing on the continuing debt crisis, one commentator said that “Greece needs re-booting.” We’ve all fixed our computer by turning it off and turning it on again. But doing that with a country might be rather more risky…
Keeping our savings performance on track.Mr O - Worcestershire