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Equity markets experience pronounced volatility

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Early in May, global share prices were lifted by encouraging US employment data. General investor sentiment was further boosted by reassurances from European and Japanese central banks that policymakers would continue to implement measures designed to support economic revival. However, optimism was tempered by disappointing manufacturing and industrial production data from China, fuelling concerns the country’s economy might be slowing down.

Share-price volatility during May was particularly pronounced in Japan, where the benchmark Nikkei 225 index experienced daily swings of as much as 7%. Volatility in Japan was exacerbated by worries over the global growth outlook and concerns the US Federal Reserve might begin to ease its programme of stimulus measures.

The Nikkei 225 surged during May to reach its highest level for more than five years but eventually ended the month 0.6% down. Nevertheless, Japan’s benchmark index has risen by 32.5% since the beginning of 2013. Meanwhile the yen continued its downward trajectory, providing encouragement for Japan’s exporters, and Japan’s economy expanded at an annualised rate of 3.5% during the first quarter, boosted by prime minister Shinzo Abe’s aggressive economic and monetary policy.

In the UK, both the Bank of England and the British Chambers of Commerce upgraded their forecasts for UK economic growth and business confidence does appear to be improving. During the month, the FTSE 100 index reached its highest level since 2007. Overall, the index of blue-chip companies rose by 4% during May and has now climbed by 11.6% since the start of the year.

Over in the US, the Dow Jones Industrial Average index climbed above 15,000 points during May, boosted by stronger-than-expected employment data. Overall, the Dow rose by 1.9% during the month. The US economy expanded at an annualised rate of 2.4% during the first quarter, slightly lower than the rate of 2.5% initially calculated. Nevertheless, consumer confidence did reach its highest level for more than five years during May.

The month also saw the European Central Bank cut the eurozone’s key interest rate to 0.5%, its lowest-ever level. However, the eurozone’s recession shows no sign of abating – the region’s economy contracted during the first three months of 2013 at an annualised rate of 1.0%. France slipped back into recession although the country’s CAC 40 index did rise 2.4% during May. Germany produced only lacklustre first-quarter growth yet the Dax index reached a new high in May, ending the month up 5.5%.

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