Your weekly Markets Update:
Posted on: 10 Aug 2012 by James Farmer

Global investment markets have continued to make progress this week as Mario Draghi’s words still resonate.

Markets appear to be distracted by hopes of central bank intervention and this is providing support to investor sentiment and consequently risk assets. Equity markets have enjoyed a steady climb on the week, whilst yields on top tier government debt have also ticked up slightly.

It is too early to accredit this with a marked shift in sentiment, particularly given it is August and trading volumes are seasonally thin.  Investors are still wary and top tier sovereign debt still provides a haven, albeit an expensive one. However, markets are currently more forgiving of less than encouraging economic data as it opens the door for further fiscal stimulus – something equity markets would welcome with open arms.

The Bank of England revised its growth forecasts for the UK economy downwards in its Inflation Report.

Only a few months ago that forecast was an anticipated growth rate of 2.56% over the next couple of years. It is now expected to be more like 2.1%. The Governor noted the slow pace of recovery and the commitment of the MPC to do “all it can” to support that recovery. Markets shrugged off the news with one eye on further QE. The same could be said of China, where slowing output and inflation also offer the People’s Bank of China room to act.

It was another dark week for the reputation of the UK banking industry as Standard Chartered, one of the darlings of the UK stock market, was accused by US regulators of breaking longstanding US sanctions on Iran and then (allegedly) falsifying records and submissions. These are weighty accusations and markets reacted badly, wiping close to 25% off the share price in a matter of hours.

Standard Chartered has been a mainstay of many UK Equity portfolios and we have exposure through some of the funds in which we invest.

The consensus amongst long standing supporters of Standard is that markets have overreacted, particularly given how regulators treated HSBC recently, and they have taken the opportunity to build up their stakes during the sell-off. In the short term that stance has paid off as the share price bounced back during the following days.  Standard Chartered have come out fighting but it looks like a protracted battle is on the cards. A fine looks likely. More punitive measures would be unprecedented but we will have to wait to see how things progress.

 

Tags: bank of china | bank of england | banking industry | central bank intervention | china room | equity portfolios | fiscal stimulus | global investment | government debt | growth forecasts | inflation report | investment markets | investor sentiment | mario draghi | slow pace | sovereign debt | steady climb | uk economy | uk equity | uk stock market