At the start of each month we produce a briefing note for our team of Financial Planners to share with their clients.
This briefing note includes some commentary on the investment markets and economy over the previous month.
If you would like to receive the briefing note as a PDF, please contact your Financial Planner.
Here is an extract from the note which we hope you will find useful.
As at 29th February 2012, the FTSE 100 index of leading UK company shares closed at 5,871.51, rising by around 3.34% during February. Since the start of 2012, the index has risen from 5,572.30, a rise of 299.21 points or 5.37%.
February saw another bailout deal agreed for the ailing Greek economy, which was lent over £110bn in return for agreeing to cut its debt from 160% to 120.5% of GDP by 2020. Private investors in Greek debt had to accept losses of 53.5% on their bonds, with real losses of around 70% of their original investments.
This latest bailout has restored some stability to the troubled eurozone but we do not believe it represents a decisive conclusion to the eurozone sovereign debt crisis. The markets remain nervous about the temporary liquidity boost from the European Central Bank coming to an end and the impact this will have on some banks which have become reliant on this source of funding.
The contraction of 0.2% in the size of the UK economy in the final quarter of 2011 was confirmed by the Office of National Statistics, following their preliminary figures the previous month. Despite many gloomy forecasts, the Confederation of British Industry (CBI) believes the UK will avoid a double-dip recession this year, forecasting growth of 0.2% in the first quarter to reverse the contraction in the previous quarter.
The latest minutes from the Bank of England show some improved sentiment in financial markets, with some of the reasons for improvements in the global economy remaining unclear.
The Bank of England kept interest rates on hold at 0.5% at their last Monetary Policy Committee meeting in February, with all members voting to keep interest rates on hold. It remains our belief that interest rates will remain low for the remainder of 2012 and possibly for longer.
At their February meeting, the Bank decided to extend their asset purchase programme of quantitative easing by a further £50bn to £325bn. We understand that two members of the Monetary Policy Committee voted for a £75bn extension to this programme, which suggests that additional quantitative easing could occur later this year.
Price inflation fell again in the twelve months to January 2012, with the Consumer Prices Index (CPI) falling from 4.2% to 3.6%. CPI continues to remain well above the government inflation target of 2% but there are signs it will continue to fall towards target. The Bank of England believes inflation will be below the target for longer than it will be above target during their forecast period.
The Retail Prices Index (RPI) measure of price inflation also fell, from 4.8% in December to 3.9% in January. Both measures of inflation were reduced as a result of the January 2011 VAT increase falling out of the calculation.
The latest house price figures from Nationwide suggest average prices rose by 0.6% in February. Their figures suggest a revival in the UK housing market but they warn this might only be temporary. The increase in February means a 0.9% increase over the past twelve months and the average price of a UK home now standing at £162,712.
In early trade on 1st March 2012, £1 could buy $1.59320 or €1.19370. During February, Pound Sterling strengthened slightly against the US Dollar and weakened slightly against the Euro.
Gold was priced at $1,770/ounce at close of trade on 29th February, with Silver valued at $37.23/ounce. The value of both metals rose during February, with Silver posting a stronger monthly gain.
The yield on a 10-year UK Government Bond (Gilt) currently stands at 2.14%, rising by around 5.42% during February and depressing gilt values accordingly. This follows our note last month that some bond fund managers were starting to take short positions in expectations of a price correction.
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