Synopsis: The first half of 2014 is over for the investment markets. There was not a great deal of movement in the equity markets and the big surprise was in the bond markets, where yields fell, confounding many forecasts.
Date posted: Friday, July 04, 2014
2014 started with the initial ‘tapering’ of the Fed’s $85bn a month quantitative easing (QE) programme. The QE change was accompanied by a raft of predictions that the 30 year+ market in bonds would come to a sticky end. Six months on the picture has not worked out quite as expected, as the data below shows:
* November 2013 and May 2014 data
+ Not seasonally adjusted
A few points to note from this table are:
• The UK stock market has gone virtually nowhere in the half year, despite the resilience of the economic numbers. The FTSE 100 briefly dipped below 6,500 in February but has since been struggling and failing to get past 6,900, which is 30.2 points below its end 1999 peak.
• The US market has done better in the face of a very difficult (and cold) first quarter and that relentless tapering process.
• The Eurozone overall outperformed the UK, mainly due to the peripheral markets, such as Spain: Germany moved roughly in line with the UK.
• The dog that didn’t bark was bond yields: the predicted rise turned out to be an unexpected drop. Over the first half of 2014, 10 year government bonds yields fell in the US, UK and Germany. Again the periphery of the Eurozone did particularly well: Spanish yields dropped from 4.14% to 2.67%, just 0.15% higher than US Treasury bonds. No wonder that yesterday the Bank for International Settlements – the central bankers’ bank – suggested markets were becoming detached from reality.
• Sterling has strengthened against both the dollar and the Euro. The UK is seen as having good growth prospects and likely to be the first major economy to push up short term interest rates. The flip side of the rising pound is that it has taken the edge off overseas equity market performance for UK-based investors.
• UK property, both commercial and residential, did well over the period. On the commercial side, each of the last 13 months has seen a rise in values according to IPD.
• Gold recovered some of its lustre after a bad 2013, but oil was little moved, despite various supply issues such as the problems in Iraq.
COMMENT
The next six months will see the end of QE in the USA and, depending on which way Mr Carney is blowing, a rate rise in the UK. So life might get a little more volatile – it could hardly be less so than at present.
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