29 October 2014

Market comment: a personal view 28th October

While markets have at last calmed down a little, there is little doubt that sentiment has softened since the highs that were achieved back in the summer


The big news recently has been the stress tests applied to European banks, a number of which failed. The exercise was carried out to determine whether banks were sufficiently financially sound to withstand a repeat of the financial crisis of six years ago. The good news was that all the UK banks passed. The bad news was that 24 of the 123 banks surveyed did not have adequate resources, including four Italian, two Greek and two Belgian banks.

The lowest rated bank in the UK turned out to be Lloyds. Perhaps this is what prompted them to announce a cull of around 10% of their staff and the closure of 150 branches. This follows earlier job losses of some one third of their workforce following their rescue by the British taxpayer. However, it is probably more realistic to lay the blame on the very significant changes taking place in how we use banks, particularly the rise of internet and mobile banking.

As it happens the results of these stress tests were better than had been feared, but any initial relief was swiftly eroded as investors focussed again on the underlying weakness of European economies. This was particularly disappointing, given a stronger showing recently in American markets. This in turn helped shares in Asia, though the picture remains rather mixed, with fears of a further slowdown in growth in China expected.

We are expecting more of a steer from America, where the Federal Open Markets Committee are meeting. This is the equivalent of our own Monetary Policy Committee and sets interest rates, though on this occasion it will be what they have to say on asset purchases that will command most interest. With quantitative easing coming to an end as the economy there strengthens, future plans will be observed closely.

Back home we have to hope that the volatility we have seen recently will come to an end. Until it does, we must expect investors to continue in a nervous frame of mind. Given that tensions remain in the world’s trouble spots - and remembering also that the economic outlook for the Eurozone appears to be worsening – we will be lucky indeed to avoid further upsets.


Related articles

There is a lot going on at the moment.

James Godrich reviews the portfolios within the Coleman Street Investment service.

The news that the Chancellor of the Exchequer has found it necessary to cancel the autumn budget underscores the difficult situation in which we find ourselves.