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Overview

October market commentary. September – a month when it was difficult to find any good news, with the headlines seemingly screaming “Crisis” and “Rescue package” on alternate days. In the UK, unemployment reached 2.5m and inflation rose: the US reversed the previous month’s positive news about jobs, stock markets fell around the world and UBS were hit by the losses of a rogue trader.

To compound the gloom the International Labour Organisation published a report saying that the world’s leading economies were “heading for a major jobs shortfall,” reporting that 20 million jobs had disappeared since the financial crisis of 2008.

But amid the misery and the professional pessimists, it’s easy to overlook the fact that plenty of companies are continuing to do well. The combination of innovative products, hard work and outstanding customer service will always succeed – even in the current climate. Fortunately there are fund managers who recognise this and who are prepared to take a long term view.

UK

There’s an old stock market adage, “Sell in May and go away.” With the FTSE just completing its worst quarter since 2002, that would have been outstanding advice this year. The FTSE ended July at 5,815: finished August at 5,394 and closed September at 5,128.

Worries about a ‘double-dip’ recession persist, plus – almost inevitably now – concerns about possible defaults in Europe.

Perhaps more worrying was the news about the UK service sector. As manufacturing shrinks, so the health of the economy is increasingly dependant on the service sector. Unfortunately, the August figures for the sector showed a sharp slowdown. The figures were the worst since the foot-and-mouth crisis and the Chief Executive of the Chartered Institute of Purchasing & Supply described them as “eye watering.” The silver lining is that the sector is still expanding – albeit marginally: September’s figures will be awaited with interest.

However, it wasn’t all bad news for the manufacturing sector, with Jaguar Land Rover confirming a new engine plant in Wolverhampton. JLR Chief Executive Dr Ralf Speth said, “We expect the engine manufacturing facility to create up to 750 highly-skilled engineering and manufacturing posts at Jaguar Land Rover, along with hundreds more highly-skilled manufacturing jobs in the supply chain and the wider UK economy.” Clearly, this is a massive boost for the West Midlands.

Europe

If August was a gloomy month for Europe, September was gloomier, with all the major stock markets falling. The markets were shaken by the resignation of ECB board member Jurgen Stark, who had apparently lobbied for stricter measures being imposed on Greece and Portugal. Inevitably there was speculation that the Central Bank was split on how to handle the debt crisis.

Every European index fell in September, with the German DAX index down 4% at 5,502 – and most markets recording falls of between 5% and 10%.

USA

The month got off to a bad start when the US reversed its earlier statement that 91,000 new jobs had been created in August, announcing that no new jobs had been created. Not something the US or world stock markets took particularly well and slightly worrying that the bean counters in the world’s biggest economy (for now at least) were initially so far out.

The US Presidential election is next year and Obama remains the favourite for a second term, ahead of potential Republican rivals Mitt Romney and Rick Perry. If this is the case, we may be set for four more years of bickering between the White House and the legislature, with a succession of stimulus packages that never quite do the job. For the record, the latest package ($400 billion) was announced on September 22nd.

There was some good news as the latest figures showed a reduction in the US trade deficit, and consumer confidence also rose fractionally during the month. Against this, business confidence (as measured by the Purchasing Managers Index) declined slightly.

Global

Only six stock markets around the world showed gains in September: New Zealand, South Africa, Saudi Arabia, Turkey, Pakistan and Venezuela – not markets that are going to figure in the portfolios of many clients!

China (reporting figures for August) announced that the trade surplus had narrowed (to a mere $17.75bn) following a surge in imports. The opposite trend was seen in Japan as utility firms imported fuel to meet electricity demand, with many reactors still offline post-Fukushima.

However, business confidence remains strong in many countries and the fundamentals – making goods that other people want and selling them at a profit – will continue to apply. Investors prepared to take a long term view could well be rewarded by investing in some of these countries.

And finally…

Back to Europe, where it wasn’t all bad news, especially for one former porn star. Cicciolina served one term as an Italian MP from 1987-1992 and will now collect a pension of £34,000 a year. Debt crisis? What debt crisis?

 

*Sources on request

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