Market pace slows down as the decade draws to a close

With X-Factor and Strictly Come Dancing reaching their conclusions and even the Christmas Number one now decided, clearly the year is now drawing to a close. That is certainly the case from an economic perspective.

 

As the Copenhagen summit on unilateral climate change policy disperses with a tone of dissatisfaction emanating, there now remain only a handful of economic events in the diary with the potential to distract markets from the onset of the seasonal festivities.

Perhaps the most notable was the announcement of the revised third quarter UK GDP figures. The initial figures issued in November are an estimate and the subsequent revisions can paint a slightly different picture. There was consensus that the forecast contraction of Q3 GDP would be revised upwards, with a minority of analysts speculating that the revision may go as high as suggesting that the UK did in fact come out of recession in Q3. The reality was a revision of economic contraction from 0.3% to 0.2%, so while a move in the right direction, it was not the early Christmas present of the UK pulling out of recession that some may have hoped for. It would seem that economic data remains in line with the expectations for a gradual economic recovery in the UK next year, at a far slower pace than many developed and emerging market counterparts. Remember you can login to our research centre to track market reaction to all macro and micro economic events.

It almost seems to be going unnoticed but Thursday 31 December will not only herald the end of the 2009, but the end of the decade. The end of the ‘noughties’ as they are now affectionately known, does not seem to be being greeted with the same level of excitement as the end of the 80’s or the 90’s but there is certainly nothing unremarkable about the decade from an economic perspective and it is perhaps worth reflecting on where the markets have been in the last 10 years. Almost 10 years ago to the day the FTSE 100 was at a high of 6,930 points. Its decade low was 3,287 points in March 2003, a threshold we came close to revisiting at the start of this year. Since then, recovery has gradually kicked in and with the FTSE 100 now above 5,300, there is cautious optimism looking ahead into the next decade.

Since 2000, we have had the tail end of the tech boom, the burst of the dot.com bubble, the full advent of the Euro and the now all too familiar Credit Crisis, not to mention countless political and social events that have shaped the markets. Wouldn’t it be interesting to know what events we will be reflecting on at the end of 2019?

We wish all our clients a very Merry Christmas and a Happy and Prosperous New Year.

‘Tis the season to be …..sterling

One week on from the Pre-Budget Report (PBR), we look at how sterling has reacted, and whether the threat to the UK’s AAA credit rating has had an impact on the outlook for 2010.

Last week’s PBR was billed as the most important for many years. With the budget deficit growing more than ever, could the UK’s AAA credit rating come under threat?

Alistair Darling predicted modest growth for the UK’s economy next year (1%-1.5%) before reaching 3.5% in 2011/12, but had to admit that the recession had been deeper than he had predicted in last year’s budget.

The forecast for Government borrowing increased by £3billion to £178 billion, and the budget deficit is close to 12% of Gross Domestic Product (GDP). Borrowing is predicted to fall from its current rate to 4.4% in 2014/15. Without a plan to ease the deficit, the UK could lose its AAA rating. Last week, the pound hit a near 2-month low against the dollar, below 1.6175, amid concerns ahead of the PBR. It rallied slightly following the confirmation that there would be no windfall tax on bank profits, but then continued to fall.

And as the Bank of England held interest rates at 0.5%, with no change to plans for quantitative easing, it can be suggested sterling’s struggle is set to continue for the foreseeable future. So what opportunities does this bring for investors in the season of perpetual hope? If investors hold the view that sterling can still bounce back, even in the short term or alternatively hold the view that the ongoing weakness in the UK economy is set to continue what can investors do about it?

For more experienced investors, there are a number of ways to get exposure to sterling from the BARXdirect suite of products including FX, CFDs, Financial Spread Trading (FST) and covered warrants. In particular the BARXdirect: FX product has seen record trading volumes in recent months as investors continue to speculate on currency fluctuations including GBP/USD and EUR/USD.

This interest looks set to continue into 2010 as various economies emerge from recession at different times and indeed at different rates which is likely to generate further volatility. Some European countries including Euro zone heavyweights such as France and Germany are already well on their way to returning to growth, while the US has only recently emerged from their longest recession since the Great Depression. The UK economy while still mired in recession appears to be on course to return to growth in early 2010.

These different stages of economic recovery mean we are seeing shifting patterns in key indicators such as unemployment figures, inflation projections, interest rates and the use of Quantitative Easing (QE) programmes. All these factors combine to cause fluctuations in currency markets which are leading to exciting trading conditions on FX markets.
Always bear in mind though that these investments can fall as well as rise in value and with FX, CFD and Financial Spread Trading products you can lose more than your initial deposit or margin payment. The investments are not suitable for everyone; if you are in doubt about their suitability for you, you should seek independent advice.

If you are an experienced investor and you are prepared to accept greater risks in exchange for higher potential returns, choose BARXdirect: FX

Gold and Japan both on the rise

It has been quite a year for gold. The commodity has been one of the significant beneficiaries of the financial climate over the last 12 months, with the gradual weakening of the US $, an environment of low interest rates, and periods of cautious investment appetite all combining to provide the right blend of economic conditions for gold’s price to soar. Gold hit a new all-time price high on Thursday 03 December as it broke through $1,225/oz and its spot price has now appreciated by 61% in the last 12 months.

Forecasters seem to have consensus on gold’s price remaining strong in the short term, with some predicting it will stretch as high as $1,350/oz in 2010. However there is also consensus that the inherent market movement in the commodity’s value will remain, which clearly presents risks to investors. In addition, the mid to long term view on gold is mixed. While the economic conditions currently favour the precious metal, those will inevitably change over time, and combined with the market movement gold’s price displays, this could mean a sudden burst of the bubble. Investors who choose to buy into gold would be wise to monitor the commodity closely and manage their position. As with everything, timing of the exit from an investment in gold could be critical.

For further background on the economic dynamics of gold read our Investment ViewPoint: Analysis article from December 2008 “Gold – A wise man’s gift?”.

If gold is a commodity you want to investment in then you could consider the Exchange Traded Commodity (ETC) ETFS Physical Gold (PHGP) as one of the most direct ways to get investment exposure.

You should bear in mind that investment in gold produces no income; its value lies in only its capital value which can go down as well as up, its price may fall as well as rise and can incur losses. Dealing in ETCs is not for everyone; please seek independent advice if you are in doubt as to their suitability for you.

Elsewhere in global equity markets, Japan captured investor attention as the Nikkei 225 Index rose by 10% during the week, its biggest weekly gain in 17 years. The main driver behind this was a shift in policy from the Bank of Japan who sought to halt appreciation of the Yen by introducing a new short term liquidity programme.

Japan embraced low interest rates and quantitative easing before most developed markets with the Yen strengthening throughout the year as a consequence. However the change in direction is viewed as a move that may take pressure off exports, a critical component of Japan’s economy that has been constrained by the Yen’s strength. Japanese equity markets responded very strongly as a result. Further changes to bolster this position are anticipated. The new Japanese government announced its first fiscal package of 7tr Yen on Tuesday 08 December, aimed at preventing a return to recession in 2010 and announcements on more aggressive measures at the Bank of Japan’s scheduled meeting in two weeks time are expected.

Investors interested in gaining exposure to the Japanese market might want to consider an Exchange Traded Fund (ETF), such as the iShares MSCI Japan. Alternatively a managed fund focussed on investing in Japanese equities may be of interest. There are over 30 funds in the IMA ‘Japan’ sector on Barclays Stockbrokers Funds Market. Access the Fund Factsheet Search on our Funds Research Centre and select ‘Japan’’ from the IMA menu selection to find out more.

Remember that the value of funds can fall as well as rise.