Perspective News

Investors’ attention during February was focused on events in the Middle East, amid reports of escalating civil unrest in Libya. The price of oil surged, fuelled by fears the turmoil could spread to neighbouring oil-producing countries. Meanwhile, global food prices soared to new highs during January. The MSCI World index rose 3.3% in US dollar terms over the month.

US share prices increased during February, with the Dow Jones Industrial Average index up 2.8%. Investor sentiment was boosted by news the US Federal Reserve had increased its forecast for economic growth over the course of this year. Minutes from the Fed’s January meeting indicated policymakers believe the economic recovery is on a “firmer footing”, although they remain disappointed in the pace and patchiness of improvements in the labour market.

The MSCI Europe excluding UK index rose 1.8% during February. The eurozone’s economy expanded at an annualised rate of 2% during the final three months of 2010. Unemployment remained at 10%. Meanwhile, in the UK, the FTSE 100 index rose by 2.2%. Smaller companies performed less well than larger and medium-sized companies during the month.

The UK banking sector moved back into the spotlight as several major institutions announced full-year earnings and revealed pay and bonus levels. Inflationary pressures continued to increase, and the rate of inflation rose to an annualised 4% during January. Although interest rates remained at their all-time low of 0.5%, the minutes of the most recent meeting of the Bank of England’s Monetary Policy Committee provided evidence of growing dissent among policymakers.

China finally superseded Japan as the world’s second largest economy last month. China’s economic growth has surged in recent years, driven by a boom in manufacturing, whereas Japan’s economic expansion has been hampered by a weak exporting sector, a slowdown in consumption and a strong yen. According to the International Monetary Fund, the US remains the world’s largest economy, followed by China, Japan, Germany, France and the UK. Japan’s Nikkei 225 Average index rose 3.8% during February, while the Shanghai Composite index in China rose 4.1%.

Japan’s economy shrank by 1.1%, year on year, during the fourth quarter of 2010. The Bank of Japan believes the outlook for the country’s economy appears more positive and that Japan is gradually emerging from its slowdown. However, ratings agency Moody’s Investor Services cut its outlook on Japan from “stable” to “negative”, citing the “inexorable rise” of the country’s debt levels.

The contents of this article should not be construed as advice. Independent Financial Advice should always be attained in order to assess your own individual circumstances.