Matthew Bennett, Head of International Equities at NFU Mutual, reviews the markets and economic announcements for the week commencing 11th April 2011.
Market summary
After three successive weeks of gains markets lost ground last week.
The FTSE 100 index fell 1.0% to end the week back below the psychologically important 6,000 mark at 5,996, while the mid-cap FTSE 250 decreased by 0.4%.
Inflation falls but remains a concern
A record monthly fall in the price of food and non-alcoholic beverages meant UK Consumer Price Inflation (CPI) unexpectedly fell to 4% in March (from 4.4% in February). Retail Price Inflation (which includes mortgage interest payments) fell to 5.3% from 5.5%.
The surprise decline will have pleased policy makers as it reduces the pressure on the Bank of England to raise the base rate at a time when the UK economic recovery remains fragile. However CPI is still running at twice its 2% target and on the international front inflationary pressures continue to mount.
– US CPI was higher than expected at 2.7%
– Inflation figures for the eurozone were revised upwards
– Indian CPI ran at nearly 9% in March
– Chinese CPI was higher than expected at 5.4%, prompting Chinese authorities to introduce price controls on basic consumer goods.
Against this backdrop assets such as gold which are traditionally seen as inflation hedges performed well last week. The price of gold reached a new record high at $1,483 per troy ounce while silver traded at thirty one-year highs.
Economic and stock market update
Markets fell last week after weaker commodity prices and disappointing retail sales numbers led the FTSE 100 to its biggest daily decline in a month on Tuesday.
The British Retail Consortium reported like-for-like UK Retail sales tumbled 3.5% in March. It was the largest fall in six years and casts doubts over the strength of the UK consumer in light of the Government cut-backs needed to tackle the budget deficit.
There was better news though from the Office for National Statistics which reported unemployment had declined by 17,000 in the three months to the end of February. The unemployment rate fell to 7.8%. UK jobless claims however registered a surprise increase in March thanks in part to new benefit rules which meant more people were in the labour market.
China’s economy continues to power on. Chinese GDP expanded by 9.7% in the first quarter of 2011 and although this was slightly down on the previous quarter’s 9.8%, it was still above expectations.
The Independent Commission on Banking’s interim report was released last Monday and most banks breathed a sigh of relief as it didn’t contain anything that would significantly impact their earnings. Lloyds Banking Group however criticised a recommendation that it should sell in excess of 600 branches.
In other company news chip designer ARM Holdings received a boost after a broker reiterated their buy rating on the supplier of chips to most smart phones and tablets while on Wall Street US investment bank JP Morgan announced record profits.
The week ahead
The week ahead sees the US quarter one company earnings season get into full swing. This will provide investors with a barometer of how earnings are going and the outlook statements will be very important in setting near term market direction.
In the UK trading volumes are likely to be thin due to the Easter holidays. The minutes from this month’s Bank of England Monetary Policy Committee meeting however are released on Wednesday while the retail sector will remain in the spotlight as Tesco announces its preliminary results and the Office for National Statistics publish their retail sales figures for March.
Source : NFU Mutual
