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Global market update

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Even though major markets were up significantly during October, the month was characterised by exceptional volatility across global indices. Investors remained jittery during the month amid intense speculation over the outlook for the eurozone and concerns the region’s leaders might not be able to reach an agreement over measures to resolve the debt crisis.

The FTSE 100 index rose 8.1% over the month as a whole, while in the US the S&P 500 index increased by almost 11%. In Europe, the CAC 40 index rose 8.7% and the DAX index climbed 11.6%. That said, it is worth noting, despite these relatively strong monthly performances, all these indices remain below – and in some cases substantially below – their levels recorded on 31 December 2010.

Investor sentiment was briefly boosted by the news the ‘Troika’ of the European Central Bank (ECB), European Union and International Monetary Fund (IMF) had agreed to provide Greece with its latest tranche of bailout money, comprising €5.8bn (£5bn) from eurozone member states and €2.2bn from the IMF. The Athens Stock Exchange has fallen by almost 43% since the end of last year.

The banking sector suffered a particularly torrid time during October, and some major banks – for example, Societe Generale, Bank of America, RBS and Commerzbank – experienced very large daily swings. Share prices in the sector were boosted by the ECB’s announcement of emergency loans totalling40bn to help the recapitalisation of the eurozone’s banks. However, the sector took a battering at the end of the month following the news US broker MF Global had filed for bankruptcy protection, having buckled under the pressure of $6.3bn-worth (£3.9bn) of exposure to eurozone government debt.

As the month drew to a close, Europe’s leaders finally agreed emergency measures to address the region’s problems and reduce Greece’s debt burden to 120% of its GDP by 2020. Private banks holding Greek bonds will have 50% of their returns written off, the European Financial Stability Facility (EFSF) will be expanded and European banks will have to achieve a higher capital ratio by June 2012 in order to protect them from the risk of future crises or defaults. However, during the final hours of October, Greek Prime Minister George Papandreou announced a referendum on the on the measures, raising fears the deal could be thrown into jeopardy. Looking ahead, the recent bout of volatility appears unlikely to subside in the immediate future.

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