Monthly Markets / May 2013

May 17, 2013

May provided a glimpse into how global capital markets may react to the withdrawal of central bank intervention.  Under questioning before the Joint Economic Committee, Federal Reserve Chairman Ben Bernanke said the Fed could slow the pace of its asset purchase program in the next few meetings, if the economic data is sufficiently strong.  Markets reacted sharply to the comment.  Global equities, which had been steadily climbing prior to Bernanke’s testimony, reversed direction with the Nikkei dropping 7% in its biggest single day’s fall since the 2011 earthquake and tsunami disaster.  Global bond yields also sold off although sovereign yields were already on an upward trajectory.


Monthly Markets / April 2013

April 17, 2013

Concerns about global growth re-emerged in April following disappointing Chinese GDP data, significant falls in commodity prices and ongoing economic weakness in the Eurozone.  Markets reacted accordingly with defensive and higher yield sectors significantly outperforming cyclical and higher growth sectors.  This trend was evidenced in the continued outperformance of developed markets relative to emerging markets and, in Australia, the ongoing outperformance of the broader index relative to small caps.


Monthly Markets / March 2013

March 17, 2013

In March, we were reminded flare ups in Europe continue to have the capacity to influence markets.  The initial deal between the EU/IMF and Cyprus on a EUR10 billion rescue package saw, for the first time, the imposition of losses on bank depositors.  The market reaction was what one would expect – significant falls in European equities to reduce gains made earlier in the month and core, safe haven yields declining, while peripheral yields spiked.  Marathon negotiations led to a last minute agreement being reached just before the ECB was due to withdraw emergency financial support.  The final deal saw the burden of responsibility shift entirely to large depositors who are expected to contribute EUR4.2 billion to the rescue package.  In the aftermath, EU officials stressed the terms of the deal with Cyprus were not a blueprint for future financial crises, as feared by some investors.  Away from Cyprus, Italian politics remains in a state of limbo after the elections in February with Beppe Grillo’s Five Star Movement ruling out a coalition with either of the major established parties.


Monthly Markets / February 2013

February 17, 2013

In February, political events moved to the fore again.  An indecisive Italian election outcome unnerved European bond and equity markets, while in the US politicians failed to reach a compromise to avert or delay the so-called “sequester”, $85 billion in automatic spending cuts over the next seven months.  US markets, however, shrugged off Washington’s latest deadlock and continued to post gains as Chairman Ben Bernanke reiterated the Federal Reserve’s commitment to quantitative easing, suggesting that investors are currently more concerned with monetary than fiscal policy.  Meanwhile the US economy continues to shows signs of progress with the Institute of Supply Management (ISM) survey for February indicating above average production growth, with improvement coming from both current production and the more forward looking new orders survey.


Monthly Markets / January 2013

January 17, 2013

January was a month in which it seemed each of the major hurdles were dealt with one by one, at least for now.  After the partial resolution of the fiscal cliff early in the New Year, US lawmakers continued the theme of temporary measures by extending the debt ceiling with conditionality to May ahead of further negotiations for a more lasting solution.  US earnings season has nearly concluded, with results broadly in line with historical averages, while further evidence of China’s soft landing emerged with the release of Q4 2012 real GDP growth figures.  Global equity and bond markets responded as expected.  Stock indices across the world generally recorded strong gains, highly rated sovereign yields also edged higher while those in peripheral European nations continued their march downwards.  Despite the positives, markets reminded everyone it is hardly smooth sailing ahead.  European equities gave up some of their gains later in the month as corruption allegations against the Spanish Prime Minister gained traction and support for Silvio Berlusconi in Italian pre-election polls jumped.


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