City Watch: It’s not all bad news for the markets, says Charles Sylvester
PUBLISHED: 06:00 19 August 2014
Over the last month, equity markets have faced growing geopolitical concerns as well as a good deal of uncertainty concerning the effect that rising interest rates might have on the economy.
Although both the Fed in the United Staates and the Bank of England have stressed that rates will only move higher gradually, the switch may still unnerve the markets.
There was also more gloom from the eurozone with the latest figures showing that both France and Germany may be shrinking back into recession, with overall economic activity across the whole region flat during the second quarter.
The rest of Europe may feel grateful that Germany is finally feeling the pain of the periphery, as one of the main barriers stopping the European Central Bank doing more to boost the eurozone economies has been German intransigence over their fear of inflation. The latest woeful data should force a rethink; keeping a lid on inflation might be fine when the people being put out of work are Greek or Italian but when neither German nor French companies can sell abroad because of the strong euro, the pressure on the ECB to do something constructive should start to be impossible to resist.
But all is not bad news. The world economy continues to grow at some 2.9%, with the US recovering smartly from bad winter weather. China is also doing better with growth of around 7.5% likely for 2015.
And in the UK, while manufacturing growth is a bit slower, the services sector and the housing market continue to expand and growth forecasts for 2014 now exceed 3%.
: : Charles Sylvester is an investment manager with Charles Stanley & Co in Ipswich.