UK

The FTSE 100 was the laggard compared to other global markets during the month of January. It rose just 1.31%. During the month there was a much better tone than for some time. The banking and mining sectors which had been hit hard during 2011, were the best performing sectors. GDP data for the UK was released showing the UK economy had shrunk by 0.2% during the final quarter of 2011. This was slightly more than had been expected. However this news may herald further Quantitative Easing by the Bank of England a development whIch would likely be positive for UK Equity markets. UK Inflation also showed signs of slowing. CPI came in at 4.2% in December, down from 4.8% in November. CPI had printed above 5% earlier in the year. Comparisons now become easier as the VAT increase implemented by the Coalition government fall out and Oil & other commodity prices have risen at a much slower rate over the last 12 months and in some cases have fallen on a year on year basis. Sterling has also been fairly stable for the last year.

 

Europe

The Eurostoxx 5o rose 3.39% during January. Primarily led by a rally in Banking stocks. Pre the Christmas break the ECB had flooded markets with cash by lending European Banks some 500 bn Eur for 3 years, at a favourable rate of 1%. This was primarily because hundreds of billions of Euro’s of Sovereign Debt is needed to be rolled over during the first few months of 2012. The ECB had argued for this money to be re-invested by the banks into the sovereign Debt of European nations. As such banks which buy debt that is trading at yields of 5-15% using the borrowed funds paying just 1%, stand to make a handsome profit. At first the markets did not take much notice, although as the policy sank in during January and Investors realised an imminent credit crunch in the Eurozone may be put off for now; stock and bond markets rallied. Some commentators have called this policy QE in all but name. However it is not technically causing an increase in the money supply as banks are at the same time retiring some outstanding debt.

 

Japan

The Nikkei rose 4.10% during the month. While other central banks around the world are beginning to impliment policies to keep interest rates low for the foreseeable future, this policy is not new to Japan. Whether or not this policy has been successful is somewhat debatable. Figures released in January show that Un-employment in Japan remained low at 4.5% and in this sense the Japanese have managed to massage the efects of running down bank debt. However consumer prices registered a fall over 2011 of 0.2% showing that loose monetary policy has not been able to get prices rising again. Japanese Exports fell for the third month in a row making this the first year for 31 years when Japan has seen a trade deficit.