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How the year has started
The new year began with many of the same overriding preoccupations that characterised 2011 although share prices were boosted during January amid rising optimism the global economy would manage to weather the worst effects of the eurozone’s ongoing sovereign debt crisis. Nevertheless, there appears to be little room for complacency.
The International Monetary Fund (IMF) believes the global economy is “deeply into the danger zone”, with the organisation’s managing director Christine Lagarde warning: “No-one is immune in the current situation. It is not just a eurozone crisis it is a crisis that could have spill-over effects around the world.”
January also saw Standard & Poor’s (S&P) downgrade the credit ratings of nine eurozone member countries, including France, which lost its coveted AAA rating. Austria, Cyprus, Italy, Portugal, Slovakia, Slovenia, Spain and Malta were also downgraded, with the ratings agency citing “insufficient” measures taken by European policymakers to address the debt crisis. S&P furthermore downgraded the rating of the European Financial Stability Facility as, having cut back the ratings of France and Austria, there were insufficient AAA-rated guarantors for the European bailout fund to retain its top status. In Germany, the DAX index rose 9.5% during January, while in France the CAC 40 index rose 3.3%. At the end of the month, a new European Union treaty, which is aimed at strengthening fiscal discipline, was signed by every member state with the exception of the UK and the Czech Republic.
In the UK, the FTSE 100 index rose by 2% during January. Hopes of a resolution to the eurozone’s debt crisis were tempered by fears over another UK recession, following the news the UK economy had contracted by 0.2% during the final quarter of 2011. In the US, the Federal Reserve announced that it does not expect to increase US interest rates until late 2014. The Dow Jones Industrial Average index rose 3.4% during January while the S&P 500 index rose 4.4%.
In China, the Shanghai Composite index rose 4.2% during January, boosted by optimism that policymakers might start to loosen their monetary stance. China’s government has taken extensive steps to cool the country’s expansion and promote a more sustainable rate of long-term growth. Meanwhile, the Nikkei 225 index rose by 4.1% during January, although sentiment was tempered by the news Japan had posted an annual trade deficit for 2011, caused by the effects of the Great East Japan Earthquake.
Chartered Financial Planner