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August overview on global markets

August overview

Let us start at home. As you are all probably aware the UK cut its interest rates from 0.5% to 0.25%. The lowest level interest rates have ever been. The move by the Bank of England was widely anticipated by investors. In addition to the economic decision to cut rates The Bank of England also completed additional fiscal actions including stimulus measures and a pledge to take further action if necessary. The move is supposed to provide confidence to the markets – we will just have to wait and see if it proves effective. Meanwhile new business during July declined which has some experts believing that the chances of us sliding into a mild recession has increased. Add to this the possibility of rising pension deficits and it doesn’t paint a pretty picture for the coming months.

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It would be interesting to see how the new business changes have affected us here in Cornwall. I suspect Truro, Newquay and St Austell have seen a strong season fuelled by tourists flocking here.

How does this compare to the US?

Over in the US better than expected jobs data provided an injection for US stock markets and increased expectations that interest rates will be increased before the end of 2016. As a result of increased expectations of a rate increase, the banking sector showed some strong performance. I wonder though if they’ll hold off from any major changes until the new president has been elected in the autumn.

In Japan the cabinet agreed economic stimulus measures in the form of a package of over 28 trillion yen designed to boost their flagging economy. This will form part of a supplementary budget in September. Investors seemed to have had a mild response to these new fiscal measures. The US dollar also increased against the Yen on the back of speculation of a US interest rate rise, which provided a boost for Japanese share prices. The Nikkei 225 Index rose by 1.9% over August – a nice fiscal return for the index.

Finally in Europe, Greece turned around the first quarter fiscal contraction of 0.1% to a positive growth of 0.3%. Now I know that it’s not something to shout about but hopefully it a baby step in the right direction. Italy’s economy on the other hand stagnated for the second quarter. France’s CAC 40 index remained largely unchanged for the month. Germany’s growth in the economy lost its way a bit in the second quarter with the economy expanding by 0.4% compared with 0.7% during the first quarter. Confidence amongst German businesses has been reported as registering a sharp decline.

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Last updated: 5th September 2016

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