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September Market Commentary

At the end of July, President Obama and the US Senate were arguing over the debt crisis. But no sooner had a fragile truce been brokered than Hurricane Irene swept along the Eastern seaboard. Obama might well have echoed Harold Macmillan: “Events, dear boy, events.”

Worries over debt were echoed across Europe. Asked when the problems with Greece might be resolved, one senior European politician let slip a rare moment of candour, replying, “Not in my lifetime…”

Sadly, August 2011 in the UK will be remembered for the inner-city riots. Whatever the direct or indirect causes, the scenes of looting and civil unrest will live long in the memory.

UK

Having ended July at 5,815, the FTSE was buffeted by debt concerns and finished the month at 5,394 – a fall of just over 7%. The position was even worse in mid-month, with the market spending some time hovering around the 5,000 level.

Consumer confidence remains low in the UK, with many people still worrying about their jobs. With 16 weeks to go until Christmas the retail sector will be praying for an upturn.

Nationwide reported that UK house prices fell by 0.6% in August, with prices lower than they were a year ago in every area except London. Mortgage approvals were up slightly at 49,000 – still a long way short of their peak. Estate agents report that there are roughly twice as many people looking to rent as are looking to buy. Like the stock market, a long, slow recovery seems the most optimistic outlook for housing.

Europe

It was a gloomy month for Europe. The debt crisis dominated the headlines and not surprisingly stock markets fell. More worryingly, the jobless total rose for the third consecutive month, with Eurostat now putting the figure at 15.7m. In Spain, the unemployment rate is 21.2% – the highest in Europe.

Jean-Claude Trichet, the ECB President, has suggested that gloom over Eurozone prospects will lead to a re-think of the Bank’s interest rate strategy. So far, the ECB has taken a much tougher line on inflation (and hence interest rates) than their counterparts in the US or the UK. It will be interesting to see whether this remains the case.

Meanwhile Portugal has announced that it will implement the “biggest cuts in 50 years.” Whether it is too little, too late remains to be seen.

USA

There was good news and bad news from the US through August. The country was battered by a hurricane, the stock market fell (albeit only slightly) and to the dismay of Apple fans everywhere, Steve Jobs resigned as CEO. Against that, 91,000 new jobs were created and commentators were cheered by the resilience of the stock market.

President Obama has called for a new round of infrastructure spending to boost the economy, possibly with one eye on next year’s Presidential elections.

One long term concern in the US is that the baby-boomer generation is now well past its peak spending years as the boomers retire or near retirement. This has long term implications for consumer spending and worryingly, mall vacancies in the US are at an 11 year high.

Global

Japan now has its 14th Prime Minister in 20 years as the unpopular Naota Kan made way for Finance Minister Yoshihiko Noda, who faces a tough task in holding together the bickering Democratic Party and rebuilding the country after the Tsunami.

The Nikkei finished the month at 8,955 and Hang Seng index finished at 20,534 – both indices down on the month. Hopefully the previous cautious optimism will re-assert itself in September.

China also has a cloud on the horizon, where the effect of the boomers retiring in the US is mirrored to some extent by China’s ‘one-child’ policy, which may mean a slowing down of domestic demand over the next 5 to 10 years.

Summary

August is traditionally a quiet month for news. The world’s political and economic leaders must have wished that was the case this month. Whether it was riots in the UK, hurricanes in the US or political instability in Japan, it was hard to find some good news.

And yet the creation of 91,000 new jobs in the US and resilience of world stock markets gives some cause for optimism. The retail sector in the UK (and the West generally) badly needs an upturn in the period leading up to Christmas – hopefully this will have a positive impact on the jobs market.

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