Equity Markets. All the major equity markets, and most of the emerging markets, have moved higher over the month. Wall Street has provided most of the momentum, encouraged by optimistic comments from the Fed and by the flow of favourable corporate results.
Markets in mainland Europe have responded, despite the uncertainties about debt defaults; the UK market had coped well with a disappointing Budget statement that has left all the difficult
decisions until after the forthcoming general election; and the best performance amongst the major markets has occurred in the Japanese market as it has recovered from earlier weakness.
Shaw Capital Management Newsletter: Summary. Financial Markets. The mood in the financial markets has become more optimistic again over the past month. There are still concerns about the prospects for the some economies; and the latest agreement amongst the member countries of the euro-zone to offer help to Greece "if this becomes necessary" has been received with considerable scepticism in the markets. This has not really eased the fears about the possibility of sovereign debt defaults. But there have still been no significant moves towards "exit strategies" by central banks and governments, and so monetary and fiscal policies remain stimulatory, and this has helped to reassure investors that the global economic recovery will continue, even if the pace in the Euro zone is disappointing.
Government bond markets have had another difficult month. The latest agreement amongst the member countries of the euro-zone to offer help to Greece has not been well received, Greek bonds have continued to weaken, and this has provided further momentum to the switching operations out of the bonds of weaker countries. For most of the past month these switching operations benefited the major bond markets; but towards month-end a series of disappointing auctions led to a sharp fall in the world bond market and increased the overall mood of uncertainty. The massive funding requirements resulting from the measures to counter the recession are clearly putting great strain on all the bond markets.
Movements amongst the major currencies have been fairly limited over the past month, but the markets remain very uncertain. The dollar has retained its "safe haven" status, despite the sudden weakness in the world bond market.
Investors and traders have awaited further evidence about debt problems in Europe that might affect the euro, and about the policy decisions in the UK after the general election that might affect sterling; but the view in the markets seems to be that both currencies will fall further against the US dollar. The yen has also weakened over the month, with the move attributed to the resumption of "carry-trade" operations financed by cheap yen borrowings.
Short-Term Interest Rates. There have been no changes in short-term interest rates in the major markets over the month. Shaw Capital Management Newsletter: Summary. Commodity markets have been encouraged by the general improvement in sentiment, but have produced a mixed performance. Base metal prices are sharply higher, but soft commodity prices are mixed, with the further big fall in sugar prices as the main feature.
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