Overview

July 2010 (covering the month of June 2010)

Positive news, such as strong manufacturing numbers from China, India and the US and China breaking its peg with the US dollar, was overwhelmed as investors became nervous over sovereign indebtedness, the capital adequacy of European banks and warnings that global growth may slow over coming months. World stockmarkets sold off, with the MSCI World index falling by 4.3% over June in local currency terms. Current newsflow regarding trade and production growth has generally been good, but consumer and investor confidence waned as a number of major institutions warned that risks to global growth have risen: The World Bank issued a warning that global economic growth could stall sharply if there were to be a sovereign default in Europe which led to a loss in market confidence; the Bank of International Settlements said that keeping interest rates low for too long or not cutting budget deficits could the sow seeds of another crisis; and the International Monetary Fund (IMF) stated that risks to the global economic outlook have ‘risen significantly’ and that policy makers now have limited room to provide further support. The IMF is concerned that fiscal consolidation in Europe may crimp Asian growth, especially as the region is leading the global recovery. The G20 summit in Toronto revealed divisions in policy, with European countries adopting fiscal consolidation measures which the US administration believes will subdue domestic demand in the global economy.

US

• US markets fall on disappointing housing, employment and confidence numbers, in addition to external influences
• Industrial production and capacity utilisation show healthy gains
• New home sales fall sharply after the withdrawal of government subsidies

Europe

• Sovereign debt concerns drive weaker sentiment as governments across Europe continue with austerity measures
• Latest European inflation figures are lower than forecast
• German Ifo survey of business confidence at highest for 2 years

UK

• Markets fall on global growth concerns
• Emergency Budget raises VAT and CGT and affects major cuts in public expenditure
• BP agrees to cut dividends this year and place US$20bn into a claims fund administered by a third party appointed by the Obama administration

Asia Pacific

• China abandons its currency peg with the US dollar
• Prime Ministers of Japan and Australia replaced after heavy falls in public support
• Moody’s upgrade Indonesia’s credit rating outlook to ‘positive’ from ‘stable’

Emerging Markets

• Nervousness over the European debt crisis sours investor sentiment
• Despite this, emerging Asian equities manage to gain, aided by upbeat economic data
• Oil and commodity prices fall, US dollar firms amid a rise in risk aversion levels

Fixed Interest

• Greek government bonds downgraded to junk status by Moody’s
• Treasuries and gilts rally further
• MPC hold UK rates at 0.5%, but voting is split

Where Invesco Perpetual has expressed views and opinions, these may change.