City Watch: Geo-political concers likely to act as a brake on market progress, says Brian Tora

Brian Tora of J M Finn & Co

Brian Tora of J M Finn & Co - Credit: Archant

Just as the weather took a turn for the worse last week, so markets succumbed to the worsening situation in the Middle East.

While shares have slid lower, rather than collapsed, last week’s 1.7% fall in the FTSE 100 Share Index has brought it back below 6600. Not so very long ago it was flirting with 6900, just a few points away from the all time high.

As it happens, a better tone to markets in America at the end of last week helped Asian shares off to a good start, reflected in a recovery in early trading here yesterday. Sentiment was helped by some encouraging news on the employment front, with a survey from accountancy firm BDO suggesting firms are hiring at the fastest rate for 16 years. Job creation, too, is improving, though there are no signs yet of any significant uplift in wage inflation.

There will be much to take into account this week, with the Bank of England’s inflation report due, news from the Council of Mortgage Lenders and several major companies reporting. We will also have preliminary figures for economic growth in the second quarter here, though these are often revised later. Still, it should provide confirmation that we remain on the mend, with the economy now back at pre-financial crisis levels.

But behind all this the situation in Ukraine, Gaza, Syria and now Iraq continues to give cause for concern. Indeed, the boss of Britain’s largest fund management group, Aberdeen Asset Management, has been quoted as saying that he does not believe investors are fully taking into account the potential upsets these geo-political issues could create. At the very least, these problems are likely to act as a brake on further market progress.

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Perhaps it is just as well that it is the middle of the summer holidays and activity is muted. Let us hope for some favourable resolution in some of the world’s trouble spots before too long.

: : Brian Tora is an associate with investment managers, JM Finn & Co.

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