Chart A (Yuan against US dollar, 1 year to 31 October 2010)
Source: Bloomberg
Power for $25bn and was a part of six of the largest US M&A deals thus year. The global economy, like the equity markets continued to be characterised by mood swings and volatility. There was, however, more good than bad information being filtered through the system. The UK economy grew by 0.8% during the third quarter of 2010. It surpassed analyst expectations as strong figures were recorded for services, industry and construction which on its own accounted for 4%, according to City AM. As such, ratings agency Standard & Poors raised the outlook on the UK’s AAA rating to stable from negative, stating that they were pleased with the coalition government’s deficit reduction plans. It also helped to restore investor confidence in the country.
China and US manufacturing data gave investors a boost as both nations recorded further expansion in the sector, according to the FT. The US Institute for Supply Management Purchasing Manager’s Index rose to 56.9 from 54.4, a reading over 50 indicates expansion. Similarly, China’s Official Purchasing Manager’s Index rose 54.7 from 53.8 in September. US economic growth was recorded at an annualised rate of 2% for the third quarter,
showing acceleration on the previous quarter, according to BBC reports. It came despite high unemployment, housing weakness and the looming of QE2.
Australia and India raised interest rates in an attempt to avert rising inflation, according to the BBC. Australian rates rose by a quarter percentage point to 4.75% while India also rose rates a quarter percentage point to 6.25%. Australian worries included the potential impact of higher export prices impacting its economy. India’s reasons were driven by rising food prices as well as increased fuel costs, all of which have caused economic and political tension. The UK placed thirteenth in the Prosperity Index, compiled by the Legatum Institute, according to City AM reports. Though it had good results for entrepreneurship, governance and social capital, it fell woefully on public confidence in financial institutions, optimism about job prospects and the future performance of the economy. First to third positions were held by the Nordic countries, Norway, Denmark and Finland respectively. The US held tenth place. Like with the last few months, this column argues vociferously that it would appear that the global economy still requires further action
Business Money
in the form of perhaps monetary stimulus in order for credit and liquidity, inter alia to be at levels they were a few years ago. Markets are still not where investors want them to be, albeit, they have closed the last three or so months upwards, defying strong headwinds. Despite positive economic news, i.e. UK GDP growth, stronger manufacturing numbers from China and America, the slight upturn in momentum in M&A activity, fairly strong corporate earnings results etc from all sides, it still has not been sufficient to appease investor confidence. Forecasts and estimates seem to be misplaced and it really is a case of how markets continue to respond and to interpret information for this penultimate month in 2010 and perhaps the first quarter of 2011. But the converse is that government bond yields remain low at 2-3% for 10 years and valuations remain cheap. Always a worthwhile bet for the long- term investor. But maybe experts still need to track back to their efficient market hypothesis theories to see if an answer to an unmoved economic engine lies therein.
Jonathan Chambers,
e-mail:
jachambers@blueyonder.co.uk November/December 2010 31
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