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Global Market Update
Share prices experienced another month of marked volatility during November, characterised by mounting fears over Italy’s financial stability. In the US, the S&P 500 index fell 0.5% while, closer to home, the FTSE 100 index registered an overall loss of 0.7%. In Europe, the CAC 40 index fell 2.7% and the DAX index fell 0.9%. Meanwhile a combination of political and financial turmoil ensured significant volatility in Italy, where the FTSE MIB index fell 4.7% over November as a whole.
Ratings agency Moody’s warned that the ongoing debt crisis in the eurozone could jeopardise the credit ratings of every member country. The International Monetary Fund announced fresh measures to help countries to insulate themselves from the effects of the debt crisis in the euro area. The ‘Precautionary & Liquidity Line’ is intended to allow countries with “sound economic fundamentals” to insulate themselves against short-term liquidity requirements and “future shocks”.
More positively, having spent months raising its ‘Required Reserve Ratio’ to 21.5% in order to curb banking lending and cool inflationary pressures, the People’s Bank of China suddenly announced an unexpected interest rate cut of half a percentage point. Although unforeseen, the change in policy stance was warmly welcomed by investors around the world.
Towards the end of the month, a number of the world’s leading central banks – the Bank of England, the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank – joined forces to take co-ordinated action to support the global financial system.
The news provided a much-needed boost, not only for investor sentiment but also for share prices at the very end of the month. The BoE commented: “The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.”
The OECD expects the global economy to grow by 3.8% in 2011 and by 3.4% in 2012 although this forecast was tempered with a warning a “negative event” in Europe could seriously undermine global growth. The OECD expects a “mild” recession in the euro area in the near term and also warned that the UK recovery has halted. The US economy is forecast to expand by 1.7% in 2011 and by 2% in 2012, although the OECD remains concerned over the failure of Congress to solve the country’s deficit.
Chartered Financial Planner