24 February 2012: D: Markets strategy

feb 24, 2012

Minute Read

A batch of mostly better-than-expected December manufacturing PMIs helped to kick off 2012 on an upbeat note. The JPMorgan Global Manufacturing PMI rose to 50.8 in December from 49.7 in November. In addition, there was an upside surprise out of China….

Neil Turner, Head of Property Fund Management; Mark Callender, Head of Property Research

For professional investors and advisers only.This document is not suitable for retail

where the official PMI, driven by the output and new orders categories, improved from 49.1 to 50.3. While seasonal demand was highlighted as a tailwind, there was also some focus on Beijing’s recent push to fine-tune policy. India’s PMI pushed to its highest level in six months, while the UK also beat expectations. In the US, the ISM manufacturing index rose to 53.9 in December from 52.7 in November, ahead of the 53.5 consensus and the highest reading in six months. This week’s batch of labour market data was largely positive for recovery sentiment. However, the euro-zone sovereign debt crisis still seemed to be an overhang on sentiment. Peripheral refinancing needs, the appetite for additional austerity, the lack of resolution on the Greek PSI, the waiting game surrounding an expected S&P downgrade of France and the standoff between Hungary and the IMF/EU were among the key areas of concern. While European stocks held up fairly well, peripheral bonds came under pressure during the first week of the month.

Following Standard & Poor’s downgrade of nine euro-zone countries, the euro tumbled to a near 17-month low. Gold and oil fell as the dollar surged against the euro. In this gloomy context, the Japanese market was a bright spot.

Later on in the month, upbeat earnings from American banks seemed to validate the US economic recovery and euro-zone bond auctions sold off better than expected. The Nikkei’s average closed at an 11-week high, mirroring the broader market’s optimism.

The Fed announcement that it had extended the timeframe for “exceptionally low” rates from mid-2013 to late 2014 helped drive a big rally in many of the deeper cyclical pockets of the market, while the accompanying weakness in the dollar and speculation surrounding another round of asset purchases also fuelled a strong run-up in precious metals stocks. However, there were concerns that the Fed had not acknowledged the recent signs of traction in the US recovery that have been cited as a key factor behind the early-2012 rally.

Over the course of January, Crude WTI Oil price once again jumped above 113 USD per barrel, as Iran’s Supreme Leader warned the US against a possible oil embargo. Also the improving macroeconomic momentum in the United States, the world’s largest oil consumer, supported the oil price. Nonetheless with tensions dropping, the price went down at the end of the month to 98.46 USD.
Meanwhile, the euro increased slightly against the US dollar, as the confidence in the European policymakers in trying to find a solution to the debt crisis went up.

Source: ETFWorld – Dexia Asset Management

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