News

Where the economy goes the housing market will follow. So for a change let’s turn away from property and look at the real World economy.
Wall Street continues to rally as the US economy recovers and China’s rate cut gives a further lift to global stock markets.

At the start of the year, amid the ice storms on the other side of the Atlantic and the high winds on our shores, there was a strong sense that 2014 would be a crucial passage for global markets and the world economy. Stock markets were expected to settle and align with the slow recovery of the global economy. In the intervening months, the US and UK economies have delivered largely on these expectations, although others have lagged behind. The US equity market has also been propelled further by strong corporate earnings, foreign investment attracted to Wall Street, lower oil prices and confident consumers. The US benchmark S&P 500 index is up 12% so far this year, compared with 30% in 2013, and has achieved a record weekly close in 45 out of 47 weeks this year.
As the world’s largest economy concerns linger over other parts of the global economy, from the Eurozone and Japan to emerging markets such as Russia and Brazil. Global stock markets have been unable to keep up with the pace of Wall Street or their own returns last year. The FTSE 100 has hit the doldrums with flat returns so far this year. Last week Prime Minister David Cameron, before he boarded his return flight from the G20 in Australia, cautioned that red warning lights were “flashing on the dashboard of the global economy”. The World Bank and International Monetary Fund (IMF) believe that global trade has peaked, and the engine of rapid Chinese growth and accelerating international trade has “exhausted its propulsive energy”.
The changing course of China’s economy continues to have a profound effect on the global economy. (World Bank-IMF research suggests that China’s development of domestic supply chains has drastically reduced the need for foreign-sourced parts with a broad impact on trade from international manufacturers to global shipping. Global markets were given a boost by China’s decision to cut interest rates for the first time in two years to support its slowing economy. As world equities move clear of the mid-October squalls, the People’s Bank of China’s rate cut lifted stock markets further.
The news from China helped US equities to continue to rally, with the S&P 500 hitting a high of 2,071 points during early trading on Friday, before closing the week up 1.2% to 2,064 points. The US index has risen five weeks in a row, and responded positively to Beijing’s decision to cut rates. There was also more encouraging economic data from the US last week, which gave further support to the view that the economy is strong enough for the US Federal Reserve to pursue an increase in interest rates next year. Although Wall Street expects a slight downward revision of third-quarter growth from 3.5% to a 3.3% annualized gain, data due out this week is also expected to show that the US economy is enjoying increased levels of consumer spending. Something still lacking in the UK.
The unexpected news last week that the Japanese economy had shrunk for a second consecutive quarter in the three months to the end of September weighed on stocks in Tokyo. Although the Nikkei 225 Stock Average recovered through the week after its initial 3% fall on the news of the economy’s lurch into recession, the index was down 0.8% over the week to 17,358 points. Recent weeks have been eventful for Tokyo markets, with the Bank of Japan’s decision to scale up its quantitative easing (QE) programme to tackle weak growth followed by Prime Minister Shinzo Abe’s calling of a snap election. Japan’s government also wants to postpone a further rise in the sales tax that has curbed consumer spending.
In short, a bit of a mixed bag, but the USA is well and truly on the road to recovery, with the UK playing a close second, this has to feed through into wages and ultimately property. We are looking forward to a good year ahead