When George Osborne stood up to deliver his Budget in March everything in his garden was rosy – or as rosy as the prevailing world economy would allow. Most of the UK economic indicators were moving in the right direction and it was generally agreed that the UK was recovering from the global recession more quickly than all of its major economic competitors. Read more …
The calmer conditions that were ushered in as the clocks changed have continued. The FTSE 100 Share Index has posted modest weekly gains recently and remains in a positive, if quietish, frame of mind. US markets have actually performed even better, delivering returns enhanced by a stronger dollar. Does this mean the volatile conditions that characterised the late summer and early autumn have been consigned to history?
It is remarkable what a difference a couple of weeks can make. It was not so very long ago that it looked as though our benchmark FTSE 100 Share Index had a chance to break through into new high ground not seen since the end of the old millennium. October saw a number of negative weeks for UK shares, bringing the Footsie to its lowest level for a year. Investors must be wondering what precisely has been going on and how sentiment can change so rapidly.
Shares had run out of steam ahead of the Scottish referendum vote – hardly surprising given the disruption a Yes vote would have generated. Continuing uncertainty in the Middle East and Ukraine did not help either, but it was the way in which independence suddenly began to look a real possibility that unsettled investors. After all, in the run up to the vote nobody really expected any other result than the one we eventually got – until just before the referendum, that is.
Just as the weather took a turn for the worse after a prolonged period of exceptionally summery conditions, so markets succumbed to the worsening situation in the Middle East. Shares have slid lower, rather than collapsed, with a 1.7% fall in the FTSE 100 Share Index during a single week bringing it back below 6600. Not so very long ago it was flirting with 6900, just a few points away from the all time high.
Early July was not a comfortable time for UK investors. The FTSE 100 Share Index fell by close to 4% in just five days – the biggest drop in a single week since last March. It is difficult to see what spooked the market, though perhaps the problems within one of Portugal’s major banks served as a reminder that the financial crisis of six years ago can still throw up some unwelcome news.
In the jargon –ridden world of investment, many terms and phrases conceal the real meaning of events to the casual observer. Describing a market upset as down to “Geo-political concerns” is not taking advantage of a purely financial term, but it does rather obfuscate what might be actually happening. With economic data generally rather supportive of a more optimistic approach for markets, and merger and acquisition activity adding extra spice, the recent failure of shares to make more headway has been ascribed to “Geo-political concerns”.
Markets have retained their more positive stance, despite little sign of any resolution in any of the world’s trouble spots. The FTSE 100 Share Index moved tantalisingly close to its all time high of more than 14 years ago, while sterling has also taken on a new lease of life, helped by continuing positive economic straws in the wind allowing a more confident view of the future to be taken. But profit taking does seem to set in as we get close to the hurdle of a new high.
Despite the situation in Ukraine remaining worryingly volatile, shares have regained some of their composure. In a way this is a little surprising. First quarter profit figures coming out of America have been mixed. Amazon shares dipped 10% when their numbers disappointed. Ford, too, fell short of expectations, though others have surprised on the upside. At home the results were a little better, though BP might now be regretting putting so much of their efforts into cultivating Russian assets.
Shares have been in a risk-off mode recently, primarily as a result of the worsening situation in the Ukraine. After shrugging aside these concerns and pushing towards new high ground, our own FTSE 100 Share Index posted several days of falling values, bringing it down to the mid 6500s. Hope that new high ground could be achieved has been deferred. Property prices, on the other hand, continue to forge ahead, driven mainly by a shortage of new houses.