Global Update – Quantitative Easing is Back

Share prices increased during October, and many companies released strong earnings reports. The MSCI World Index rose by 3.7% during the month (in US dollar terms) and most leading stock markets – with the exception of the Japanese Nikkei – registered gains.

In the US, the S&P 500 Index rose by 3.7% during October, although investors were distracted by the approaching mid-term elections. Sentiment was further unsettled by growing speculation (since confirmed) that the US Federal Reserve would launch another round of monetary stimulus to boost America’s flagging economic recovery. However, the US economy was estimated to have expand by 2% year on year during the third quarter.

In the UK, the FTSE 100 Index rose by 2.3% during October, and share prices climbed to their highest levels since April during the month. The UK economy expanded by an unexpected 0.8% during the third quarter, whilst the coalition government announced a controversial package of spending cuts aimed at reducing the UK’s huge budget deficit. Elsewhere, a report from the International Monetary Fund raised concerns about the outlook for recovery amongst developed economies, suggesting that, in the short term, harsh budget cuts might do more harm than good. 

The MSCI Europe ex UK Index rose by 3.2% in euro terms during the month. Despite industrial action in France and Spain, confidence in the economic outlook for Europe rose faster than expected during October, boosted by increased optimism amongst manufacturers. Nevertheless, concerns over possible defaults by heavily indebted European countries, such as Greece, have not yet completely abated.

At their October meeting, policymakers at the Bank of Japan set benchmark interest rates at zero to 0.1%, and expressly stated their intention of keeping rates at “virtually zero” until they can see an unambiguous and lasting end to deflation. The yen reached a 15-year high against the US dollar, pulling down the share prices of exporting companies and (as mentioned) the Nikkei 225 Index fell by almost 2% over the month.

The International Energy Agency (IEA) increased its forecast for demand for crude oil amid evidence of higher consumption in mature economies such as the US, Japan and Germany. This, coupled with strong demand from developing economies such as China, led the IEA to raise its expectations for worldwide oil consumption to an average of 86.9 million barrels per day during 2010.

Issued by Jane Smith Financial Planning Limited which is authorised and regulated by the Financial Services Authority.

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