INSPIRE: March Market Commentary 2014
Most of the major stock markets enjoyed a good month in February, more than making up for the falls experienced in January. The UK, German and US Dow Jones index were all well ahead in the month, as were Hong Kong and India.
The news from Ukraine and Russia at the start of March arrived too late to seriously affect any of the other markets, though March’s stock market bulletin may well tell a different story, as the markets work out across the month what impact (if any) the troubles in the region will have on economic performance.
For February though, the news was generally rather good, with even the UK banks providing reasons to be cheerful…
Only in the topsy-turvy world of banking can setting aside billions to compensate for your mistakes be seen as good news, but that was the case with Lloyds as they earmarked another large chunk of money to compensate victims of the payment protection mis-selling scandal, taking the total bill close to £10bn.
Why was this seen as good news? Because the City believes that the way is now clear for Lloyds to begin paying dividends for the first time since its near collapse in 2008, and for the Treasury to launch a multi-billion pound share sale as early as this month.
More good news for the banking sector (well, some of the banking sector) came at the end of the month when it was announced that RBS would pay out £580m in bonuses despite losing the small matter of £8bn.
Good news from a less obvious source came from Poundland – apparently the new favourite shop of the hard-pressed middle classes – who gave a much-needed boost to the UK high street and announced plans to float on the stock market with a valuation of £800m.
The UK construction sector was also doing well, growing at its fastest rate since the financial crisis began. The Purchase Managers Index for January was up to 64.6 in January, from 62.1 in December, with confidence at the highest level since September 2009. Data firm Markit reported that “greater access to finance” had led to more new business and constantly increasing levels of employment in the sector. Perhaps not surprisingly, the average price of a house in the UK rose in December – up 0.9% to £250,000.
Meanwhile, the debate regarding Scottish independence rumbled on, with David Cameron and Alex Salmond holding cabinet meetings a few miles apart in Aberdeen. No, despite being in the same area, they did not meet for talks…
George Osborne made a very strong speech in Edinburgh pointing out that an independent Scotland would not be allowed to keep the pound, and European Commission Chief Juan Manuel Baroso also stated that it would be “very difficult” for Scotland to join the EU in the event of a ‘yes’ vote. ‘No’ remains the firm favourite with the bookmakers, but the gap in polling intentions has narrowed appreciably over the past few months.
The FTSE-100 index closed February at 6,810 – up 5% in the month and within sight of the all time high of 6,930 recorded in December 1999, needing only a 2% rise in March to finally break that barrier.
Economic news released in Germany through February was almost all good, with the inflation rate down to 1.2% (largely due to lower energy prices), and figures for January also confirming a fall in unemployment – down to 5%, with youth unemployment also falling slightly to 7.6%.
It was confirmed that German GDP had expanded by 0.4% in the last quarter of 2013, largely on the back of foreign trade as domestic demand remained weak. This was up from 0.3% in the previous quarter and slightly ahead of expectations.
There was also good news in France, where household demand pushed the French GDP up by 0.3% in the final quarter. The French trade deficit fell by €6bn to €61.2bn in 2013, the lowest level since 2010 as imports fell faster than exports.
There was even good news for the beleaguered Spanish economy, as it recorded a second consecutive quarter of growth – 0.2% in the final quarter of 2013, to follow 0.1% in the third quarter. The figures may not look hugely impressive, but they are at least two steps in the right direction.
As noted above, the major European stock markets did well in February: Germany’s DAX index gained 4% to finish at 9,692 whilst the French index was up 6% at 4,408.
The month in America started with the return of an old friend – yes, the country was once again on the verge of running out of cash. Treasury Secretary Jack Tew issued an urgent call for Congress to raise the borrowing limit, a move seen as putting pressure on the Republicans.
Meanwhile Janet Yelland replaced Ben Bernanke, becoming the first woman to chair the Federal Reserve – she is very much expected to continue with the policies of her predecessor.
Away from the nation’s policymakers the news was generally good, with the US manufacturing sector accelerating in February and figures for January confirming a rise in personal spending. The Consumer Sentiment Index which we mentioned last month improved again in February, showing that most Americans are feeling confident about the future. This was reflected in the sales of new homes, which jumped to a 5½ year high.
Early figures had given the US a stellar rise of 3.2% in GDP for the last quarter of 2013. This was subsequently revised down to 2.4% but the Dow Jones index took the news in its stride, gaining 4% in February to close at 16,322.
The Chinese economic juggernaut rumbled on, with GDP growing by a further 1.8% in the final quarter of 2013. Figures released for January showed a trade surplus of $31.9bn with exports up 10.6% on the previous year and imports up 10%. (As a comparison, the latest figures from the US showed a $38.7bn trade deficit.)
Inflation remained steady at 2.5%, although Chinese bank lending jumped more than expected in January and as a result the People’s Bank ‘drained’ $8bn out of the system in February to curb any danger of excessive lending.
There was a much less rosy picture in Japan, with a trade deficit of 2.79tn Yen in January, well up on the same month in the previous year. In contrast to China, the Bank of Japan extended its loan support programme as it sought to stimulate bank borrowing.
Both Hong Kong and South Korea confirmed increases in GDP for the final quarter, with South Korea in particular continuing to benefit from rising exports.
Hong Kong was the star performer amongst Far Eastern stock markets, with a gain of 4% in February to finish at 22,837. South Korea was up 2% at 1,980 and China inched ahead to 2,056. The Japanese market fell by 74 points to end the month at 14,841.
The best performance amongst the major emerging markets came from India, with the stock market rising 3% to end February at 21,120, although GDP growth was below expectations and the Reserve Bank also raised interest rates to 8% to try and curb persistently high inflation.
The markets in Brazil and Russia were both slightly down in February – with the Russian market falling immediately following the incursion into the Crimea. The situation will be one to keep a close eye on as we reach the end of March, allowing us to see whether the market worked out its initial losses or continued on something of a steep descent.
We have frequently reported on doom and gloom in this bulletin, especially on the UK high street. However, exactly the opposite is apparently true in the Ferrari showrooms of our nation, with the luxury car maker confirming that more Ferraris are sold in the UK than anywhere else in Europe.
Despite the cars costing a minimum of £151,000, Ferrari said 677 cars were delivered to the UK in 2013 as the country overtook Germany as the leading European market. As Harold Macmillan would have said, “we’ve never had it so good…”Subscribe to our newsletter
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