Financial advisor, financial services Ireland, financial service, financial planning, financial advisors, financial services 9 April 2013
Stocks Sink and Yields Fall on Negative US Economic Data Last week featured a series of disappointing US economic results, including weak manufacturing data, a jump in new jobless claims and, most notably, a weak monthly employment report. In this environment, stocks traded erratically, and ended the week lower, with the Dow Jones Industrial Average declining 0.1% to 14,565, the S&P 500 Index falling 1.0% to 1,553 and the Nasdaq Composite dropping 1.9% to 3,203. Small cap stocks fared even worse, with the Russell 2000 Index losing nearly 3% last week. In fixed income markets, US Treasury yields fell yet again (as prices rose), with the yield on the benchmark 10-year Treasury declining from 1.85% to 1.71%, close to where it started the year (just one month ago, the 10-year was yielding over 2%).
European Central Bank support At its latest meeting, the ECB kept interest rates at a record low of 0.75%, while stressing it “stands ready to act” if needed, raising expectations that the bank could lower interest rates further. ECB president, Mario Draghi, said the bank’s monetary policy stance would remain “accommodative for as long as needed”.
Bank of Japan The Bank of Japan, at its first meeting under new Governor Haruhiko Kuroda, announced aggressive monetary easing measures that surprised investors in their scope. The BoJ has committed to double the monetary base, significantly increasing its holdings of Japanese government bonds and ETF’s. Its aim is to generate 2% inflation within two years.
Global Outlook Some of the more recent economic data – such as last week’s US jobs’ data - has been slightly weaker-than-forecast but the economic backdrop is still reasonably supportive for risk assets. For example, the US is expected to grow by around 2% again this year, hampered a little by fiscal measures but a stabilising housing market may help consumer confidence. Eurozone growth will likely stay in mildly negative territory in 2013 but most economists expect positive growth to resume thereafter. China, which dominates the Asian growth picture, is expected to grow around 8% in 2013, similar to last year’s rate. Inflation is seen to be a non-issue for investors again this year. US and European economies continue to require loose monetary policies and, for that reason, short rates are likely to stay at ultra-low levels for a protracted period to come. The Fed has made policy conditional on both the unemployment and inflation rates and, barring a major reversal, policy is
expected to be very supportive. Other central banks are neutral in their stance or will ease further. For the ECB, the key issue is how the periphery develops over the year. Most analysts expect that the ECB will stay highly accommodative during 2013 as it continues to try to heal the peripheral debt crisis and support economic growth in the region. Speculation remains that the ECB may cut rates again or put additional measures in place to support the supply of credit to firms. As long as central banks continue to ‘sponsor’ a low interest rate structure the so-called ‘bond bubble’ in Germany and the US is unlikely to burst. Italian bond spreads have risen by about 1% as a result of the political uncertainty there but the knock-on impact to other markets has been very limited so far. Similarly, the immediate impact of the Cyprus situation has been very modest, albeit both situations have the potential for additional negative impact, if only in the short term. Positive investor sentiment on the periphery is now quite high and this always makes such situations more vulnerable to bad news flow; setbacks would not be unusual. Equity markets are still within historic valuation ranges and investors are still disposed towards risk assets in general. The upcoming corporate earnings from US companies will be a good test of where investors’ profit expectations for this year are positioned. Most market strategists see equities as being much better value than bonds and, additionally, the general view is that equities are also being supported by central bank liquidity and that any falls will be short-lived and will be bought by investors. Global equities in euro terms have gained 7% so far this year. This is a strong return, albeit the upward momentum in most markets – except Japan – has faded more recently.
Commodities Brent crude oil finished the week on a positive note, to close at $106 per barrel, having hit a fivemonth low on Thursday. Overall, Brent had its worst week in a month as bleak US data, including manufacturing and jobs, and rising inventories, hurt the outlook for demand.
Currencies The euro rebounded last week and strengthened against the US dollar, after poor data fuelled speculation that the world’s biggest economy is slowing. The €/$ rate finished at 1.30, a rise of 1.5% on the week
Bonds Eurozone government bond prices rose over the week as the ECB said it would keep policy accommodative and ‘stood ready to act’ to support the region’s weak economy. French, Austrian and Belgian yields all hit record lows, with the French yield having its biggest weekly drop since last July. Weak data from the US also supported demand for eurozone bonds. The Merrill Lynch over 5 year government bond index rose 1.9% over the week.
House View Performance Thomond Asset Management maintains an investment house view on how we feel your funds should be invested with each fund manager. Below we have provided you with the performance of each of these managers on an annualized basis.
Fund Manager Zurich New Ireland Standard Life Aviva Friends First
1 Year 9.21% 9.35% 9.34% 7.90% 8.67%
3 Year 19.37% 17.97% 23.29% 16.96% 14.57%
5 Year 25.21% 18.83% 42.82% 29.93% 15.66%
*Performance provided by Financial Express
Note: The performance of the above portfolios may not directly correlate to an individual’s portfolio. Please speak with your financial advisor to understand your specific portfolios performance. Asset allocations between fund managers will differ. Source: Aviva Investment Managers, Bloomberg, Zurich Investment Managers & Blackrock.