Last Week the European Central Bank (ECB) finally initiated a policy of Quantitative Easing (QE). This is the process where the central bank prints money and uses it to buy government bonds to help inject more cash into the financial system. This process has jokingly been referred to in the past as Mario’s Bazooka, in reference to the ECB Chairman Mario Draghi.

The scale of the ECB’s QE plan is certainly vast. The program will have an initial run of printing EUR 60 billion per month, to a total value of EUR 1.1 Trillion. That’s roughly double what analysts were expecting last year. However, that is also less than a quarter of the relative value that the Bank of England and Federal Reserve have both done.

Many analysts also feel that the ECB is three years too late. One of the key benefits of QE is pushing up prices and producing inflation. This has allowed countries like the UK and USA to avoid the so called “deflation trap” that has plagued Japan for the last 20 years. However Europe is already in deflation and it’s unlikely the new QE program will help to turn things around on its own.

One effect it will have is to push up the prices of European investments such as equities and bonds. However it will also have the effect of weakening the Euro so it’s unlikely that Pound and Dollar investors will be able to make any real returns from European assets.

However much of the money the ECB is printing will leak into other financial systems. This will have the result of pushing up those other currencies and their financial asset classes at the same time. These secondary effects are likely to be where foreign investors can reap the best returns.

The biggest gainers are likely to be the Pound and the Swiss Franc, as European money chases high interest rates and a safe heaven. Equities and bonds in both markets are also likely to receive a significant boost.

I hope that you have enjoyed reading this post.

Stuart Yeomans

CEO

Farringdon Group

Kuala Lumpur : Malaysia

Concerns about global economic growth, increasing geopolitical instability and the increasing worry of the Ebola epidemic, has brought back volatility into the markets. This has caused steep falls in the first half of the month; however, most major indices have bounced back quickly towards the second half, following positive data and central bank actions which have stimulated growth. With these results most regions ended the month in positive territory.

US equity markets rose in the month of October and the S&P 500 Index increased 2.4%, this was mainly due to a response by the US Federal Reserve’s decision to end their bond-buying programme. This move has effectively brought the US economy back to normality, after the global financial crisis.

Volatility had risen in the approach to the Fed’s announcement, amid concerns that share prices would suffer if quantitative easing was brought to an end. Moving forward, there are fears over the global growth outlook and US equities have experienced losses not seen since May. This being said, the markets have recovered from these losses, because of the announcement of some solid economic data.

In Europe, equity markets were naturally impacted by the deteriorating outlook of the Eurozone economy. This data confirmed that German exports plunged in August and has intensified fears that the Eurozone’s largest economy may be slipping into recession. Market participants would like the European Central Bank (ECB) to go further with their quantitative easing efforts, but this would be met with significant opposition from Germany.

The equity markets rebounded later in the month, as more positive data came to the fore, while the conclusion of the ECB’s comprehensive assessment of 130 banks in the Eurozone also led to expectations that this may improve the flow of credit to the region’s economy.

The UK equity markets trended lower, despite the country’s positive economic outlook. The UK’s economy has rebounded from recession faster than expected. While this raises expectations that the UK’s interest rates will rise, there are still signs that the housing market may be cooling and has dampened these expectations. During the month, Britain was also asked to pay an additional EUR2.1 billion into the European Union’s budget, primarily due to its economy performing better than other European economies; but also as a result of changes after a once-in-a-generation review of how gross national incomes are calculated. This has put pressure on the UK government, which is seeking to reduce the magnitude of this bill.

Asian equity markets have recovered from early weaknesses, because of other regions growth fears. Whilst China’s third quarter GDP was lower in comparison to its second quarters, it still proved to be better than expected, which helped ease concerns of further deterioration in the economic outlook. Furthermore, sentiment towards Chinese equities was bolstered by the announcement of new policies, which were aimed at supporting consumption in areas such as broadband and mobile internet.

In Japan, concerns about global economic growth hit the earnings outlook of its exporters, thus causing the countries equity market to fall initially. However, a strong US Dollar has worked in Japan’s favour by strengthening the competitiveness of its products in the US, which is one of their key markets. All this led to the equity market closing the month in positive territory. In the Emerging equity markets, returns were led by Turkey, while early gains of Brazilian equities were eroded following the outcome of the presidential election.

Bond markets began the month strongly, because the market pushed out its expectations about the timing of US interest rate hikes. Further support for this expectation was found in the minutes from September’s Federal Open Market Committee meeting. Weaker economic and inflation data seemed to support this more dovish view.

I hope that you have enjoyed reading this post.

Stuart Yeomans

CEO

Farringdon Group

Kuala Lumpur : Malaysia

As you may know, the Malaysian government have recently changed the minimum purchasing price for expatriates on properties in the Selangor region. I have included some information for your perusal so you can get a better idea of the changes and how it may affect you.

Selangor’s new restrictions on property ownership for expats have started to implement since 1^st September 2014.

The new guidelines now restrict expatriates from purchasing any types of properties that cost less than RM2mil in most of the districts in the state. Previously, the price floor was set at RM1mil, the Malaysian government are now trying to price expatriates out of the market with this 100% increase.

According to the new restrictions, residential, commercial and industrial properties are categorized into three zones, Zone 1 covers districts of Petaling, Gombak, Hulu Langat, Sepang and Klang, while Zone 2 eventually covers districts of Kuala Selangor and Kuala Langat. Lastly, Zone 3 will be covering districts of Hulu Selangor and Sabak Bernam.

The new restrictions have increased the threshold price for different properties that the expatiates wish to purchase.  Below is the table of the new restrictions on property purchases by expats.

Expats are not permitted to purchase Malay reserve property, non-strata landed residential or those sold by public auction. The expats are not allowed to acquire any properties that are set aside for the Bumiputera. Also no more than 10% of the non-Bumiputera units can be sold to expats under the new restrictions. Expats must purchase directly from the developers and not from any secondary market, limited to only one residential unit per family. Furthermore, expats are permitted to acquire strata and landed strata properties only.

The Expat Group’s chief executive officer, Andy Davison, who assisted in the Malaysia My Second Home programme (MM2H), confessed about his disappointment and said, “It seems Selangor is changing its attitude to foreigners, they used to have some of the lowest minimum prices for foreigners to purchase but now they have the highest.”

As you can see from the above information, the expatriate property market is being tightly regulated and it seems that the government are trying to price expats out of the market.

I hope that you have enjoyed reading this post.

Stuart Yeomans

CEO

Farringdon Group

Kuala Lumpur : Malaysia

The S&P 500 saw a third monthly loss for this year, closing 1.4% lower in September. Energy stocks experienced the steepest fall together with other sectors such as industrial, consumer discretion and tech which are all sensitive to the economic cycle.

There wasn’t a distinctive reason for the broader market fall, but stocks that were hit tend to be more exposed to higher interest rate.  It has been a general view that the recent strong economic performance in the US may spur the Fed to increase interest rates sooner than expected, although the Fed had maintained its assurance that interest rates will remain low for a “considerable time” after the asset purchase ceases.

A larger increase in exports and business investment had contributed to the US economic growth, growing at the fastest rate since 2011 for the period between April and June. The economic growth was revised upwards to an annual rate of 4.6% and growth in consumer spending remained unchanged from its previous estimate of 2.5%.

In Europe, equity markets advanced slightly following speculation on the European Central Bank’s QE programme.  The FTSE World Europe ex UK closed 1% higher for the month of September. The pharmaceutical sector had the biggest gains together with utilities and financial stocks and the consumer goods and services were the biggest losers.

On broader economic perspective, data out of Europe was mixed, indicating a slowdown in the European economy. The Germany economy is reeling from weakness both within the Euro area, including France (a key trading partner), and the fallout from the crisis in Ukraine which prompted sanctions to be imposed on Russia, an important customer for heavy German goods. Business expectation surveys declined in September and the Purchasing Manufacturing Managers’ Index (PMI) fell below 50 indicating a contraction.

To spur growth and combat low inflation, the ECB reduced its rates in main refinancing, deposit facility and marginal lending facility by 10 basis points respectively. The central bank also announced a new program to buy asset-backed securities and covered bonds, while implementing the first tranche of its Targeted Long-Term Refinancing Operations package (TLTROs) which provides cheap financing to banks. A little confidence was restored into the European markets following moves being taken by the ECB and its commitment to resuscitate growth in the European region. This in return saw the euro currency falling to a two-year low against the US Dollar.

Following speculation and hype regarding the Scottish independence from the UK, the FTSE All-Share index closed 2.8% lower for the month of September. An analysis of the month’s primary market sector price movements shows that the personal goods sector was amongst the better performers, whereas the food & drug retailers were amongst the worst.

On a macroeconomic perspective, the UK continued to show good growth although there were a few disappointing reports. Q2 GDP growth estimate was revised up 0.9% compared to 0.8% as previously estimated by the Office of National Statistics. Industrial production, which is a factor influencing the GDP, was reported to have risen in July by 0.5%, which is above the median growth of 0.3%. This would mean the annual growth in industrial production is at 1.7% compared to the 1.2% which was recorded in June. Although the economy has been experiencing better growth, inflation for August remained low at 1.5% compared to 1.6% for the previous month. An update on the public finances for the UK is reported to have worsened, as the Public Sector Net Debt rose over the month, and it is now about 6% higher than last year.

In the minutes released by the Bank of England Monetary Policy Committee, it indicated that “the downside risks to UK growth in the medium term had probably increased” based on all the recent data and issues.

Asian equity markets declined sharply in September as increased volatility in currency markets and a correction in commodity prices led to a sell-off in riskier assets. Further monetary easing by the European Central Bank (ECB) and strengthening conviction that the US will raise interest rates sooner than expected were the primary drivers of US Dollar strength, while some weak economic data from China also weighed on equity markets.

Chinese economic data for August reported a decreasing momentum in industrial production growth, retail sales and fixed asset investment which were all weaker than expected. Preliminary readings of HSBC’s manufacturing survey for September however showed that activity remained steady at subdued levels, which eased fears that growth would continue slowing in the Chinese economy. Political protests in Hong Kong led to further volatility in the markets.

In Japan, the yen experienced a significant depreciation against the US dollar which was beneficial to large exporters, such as transportation equipment, machinery and electric appliances sectors, where all had solid performance. Though there seemed to be poor visibility on the domestic side of things, Japanese equities made strong gains in September.

Consumer spending and consumer confidence in Japan both fell in August. A drop in the service sector overlooked a slight improvement in the manufacturing sector. An initial estimate in industrial production also came out weaker than what was expected. However weaker economic data has strengthened the speculation that there will more be monetary and fiscal policy stimulus. This caused the depreciation of the yen, as it would mean higher profits for the exporters, which led equity markets higher.

In emerging markets, equities fell sharply due to the strengthening of the US Dollar, disappointing economic data from China, and geopolitical issues. Latin America was the worst performing region, with Brazilian stocks falling heavily as President Dilma Rousseff gained momentum in opinion polls ahead of October’s election. A few emerging countries that had posted positive gains for the month were Egypt, UAE and Czech Republic. Consumer discretion and energy sectors fell the most but all other sectors in the emerging markets, with the exception of healthcare, also fell.

In the fixed interest sector, Investment Grade (IG) corporate bonds outperformed government markets. According to data from Merrill Lynch European, IG corporate bonds returned 0.19% while Bunds lost -0.16% with European IG credit spreads unchanged over the month. However, reflective of the general risk adverse mood, European High Yield lost 0.9%. In the UK gilts lost 0.67% while sterling IG corporates returned -0.59%.

I hope that you have enjoyed reading this post.

Stuart Yeomans 

CEO

Farringdon Group

Kuala Lumpur : Malaysia

Both developed and emerging market equity had positive returns in August, following an increase in investor confidence. The idea that world’s largest economies are heading towards recovery was further strengthened by the sign of growth from the US economy. Markets were also led higher by the Federal Reserve’s (Fed) statement that it will do everything within its capacity to remain accommodative until economic data showed significant level of sustained improvement.

Despite the flat performance in Japan, most equity markets in Asia finished higher, with the Thai, Philippine and Indian equity markets leading the way within the region in local currency terms. Ongoing positive political developments in Thailand, following the coup in May, provided investors with comfort, while expectations that the Indian government will help boost growth supported its domestic equity market. China’s equity market, however, struggled to gain ground as the recent positive momentum of economic data started to wane.

In the UK, the market rebounded from the weakness shown in July, as the low level of volatility recently witnessed within the equity markets continued to prevail. Economic data continues to be generally encouraging despite recently released data for June which was a little more disappointing than expected. European equity markets registered their first monthly gain since May. Market anxiety resulting from geopolitical tensions in Ukraine, and disappointing GDP figures, loomed over the region’s equity markets at the beginning of the month. However, statements made by Mario Draghi, President of the European Central Bank, that hinted at further measures to stimulate European economies and the potential announcement of a quantitative easing program, led to a strong market rebound.

Emerging equity markets continued to advance, with Latin America driving investment returns, particularly due to the strong gains witnessed by the Brazilian market. In emerging Asia, the Thai market was a strong performer together with Taiwan, as stock prices rallied, buoyed by good earnings results from the country’s technology companies. Performance in emerging Europe was mixed, however, as equity market weakness in Turkey and Russia was offset by strength in Czech Republic and Poland.

Within the fixed income markets, core government bonds globally experienced strong rallies, driven by a ‘flight to safety’ response to the geopolitical tension emanating from Ukraine and the Middle East. Weaker than expected economic data across many economies pointed to diminishing inflationary pressure, further increasing the attraction of fixed income assets. These broadly supportive factors overshadowed an uptick in hawkish sentiment within the Fed and the Bank of England, raising uncertainty about the likely timing of interest rate rises. Conversely, higher credit risk sectors of the market, such as high yield bonds, felt the negative impact of the fall in risk appetite and underperformed the wider market.

US equity markets rose steadily throughout the month of August and the S&P 500 index pushed through the 2,000 mark for the first time before closing up 4.0% (in US$ total return terms). This was the biggest monthly gain since February. Signs of growth boosted confidence that the world’s largest economy was recovering, with the Fed saying that it would do “whatever it took” to be accommodative until the data started to show significant improvements.

Investors shrugged off geopolitical fears for the most part, instead focusing on improving business fundamentals. Avago Technologies, which makes semiconductors used in smartphones, computer servers and other devices saw its share price surge to touch an all-time high after the company reported earnings that beat analysts’ estimates. Similarly, Splunk soared after the data management software developer also reported earnings that beat expectations. It also raised its full-year profit and revenue estimates.

More generally, strong company earnings and a string of corporate deal news contributed to the rally. Sector performance was led by typically defensive areas including utilities, health care and consumer staples. However, telecoms saw negative returns (-1.0% in US$ total return terms) and IT, materials and energy stocks lagged the broader index.

A gauge of consumer sentiment showed greater optimism in August. The rebound from the previous month’s dip was strongest among high income households, which reported more favourable trends in their income and wealth. The University of Michigan index of consumer sentiment rose to 82.5 in the final August reading and overall, continued to remain in the relatively tight range it has occupied throughout the year, consistent with the moderate growth in consumer spending that we have seen.

This has been supported by other US economic data. The Chicago Purchasing Managers Index rose to 64.3 in August, up from 52.6 in July, when it had fallen sharply after strong readings in the second quarter of 2014. The August rebound suggested that production in this region has been on a solid track in the third quarter of 2014 despite a soft July reading. The recent rise in new orders in the manufacturing sector has been driven by domestic activity while the non-manufacturing index posted its highest reading since 2005. The most recent ISM manufacturing index rose to 57.1 in July, the highest reading in three years. Overall export growth, however, is likely to stay modest.

European equity markets rose in August, registering their first monthly gain since May. Nervousness surrounded equity markets at the start of the month with the escalation of military conflict in Ukraine, disappointing Q2 Eurozone GDP figures and an inflation rate close to zero. Markets rebounded in the final half of the month, however, with investors regaining confidence following comments made by Mario Draghi. At a symposium in Jackson Hole, Wyoming, drawing central bankers from all over the world, Draghi stated that he is ready to use “all the available instruments needed to ensure price stability”, hinting to more stimulus measures by the ECB and the potential announcement of a quantitative easing program. The FTSE World Europe ex-UK index ended the month up by 2% (in EUR total return terms).

Just Apart from utilities and telecommunications, all industrial segments advanced in August. Health care companies registered the largest gain during the month, followed by consumer services and consumer goods. On a stock level, Dutch oil company SBM Offshore was the standout performer, amid progress in talks about an on-going litigation. Bank of Ireland was also among the leading performers, seeing its share price increase by about 14%, as it reported the first positive earnings since December 2011. The bank’s return to profitability, complemented by encouraging commentary from management on lending volumes, helped spur sentiment. Conversely, French telecom operator Iliad SA was the leading European detractor in August. Its share price fell 20% after an initial bid to acquire a majority share in T-Mobile US was rejected by the target company on valuation grounds. Iliad’s bid for acquisitions abroad raised concerns with some investors, who saw a lower likelihood of telecom company mergers in France than originally expected, and put into question the growth upside in the domestic business.

On the macro side, economic data remained mixed. Inflation in the Eurozone slowed further in August, from 0.5% to 0.3%, the weakest rate since October 2009; unemployment remained constant at 11.5%. GDP figures showed the German economy shrinking by 0.2% in the second quarter, France’s stagnating and Italy falling back into recession. Yet, fundamentals remain constructive. Lead indicators still point to expansion in the Eurozone, albeit at a slower rate. The fiscal drag in Europe has been significantly alleviated and the economic revival in some peripheral countries is still well on track. In Ireland, the Manufacturing Purchasing Manager’s Index reached 57.3 in August, the highest since September 2011. In Spain, latest total mortgage lending figures showed a growth of 13.2% year-on-year, up from a decline of -9.2% in the prior reading. Corporate earnings in Europe have also improved in Q2 and are set to grow in 2014, helped by a pick-up in global economic activity. Despite the latest headwinds, various economic forecasts still imply a strengthening of activity in the Eurozone going into 2015.

The FTSE All-Share index rebounded this month, against the background of low market volatility that has continued over recent months. Despite this lacklustre pattern, the quarterly trends of economic data are generally encouraging, although the recently released data for June has seen a bias to more disappointing news.

An analysis of the month’s primary sector price movements within the equity market shows that the technology hardware sector was amongst the better performers, whereas the mining and food & drug retailers were amongst the worst. From the group of larger companies, the best share price performance was ARM Holdings and the worst was Tesco.

Companies involved in noteworthy announcements included Tesco, Drax, Serco, BP and Legal & General. Tesco released a trading update in which it said that its profit for this year would be below its previous expectation and due to this shortfall the board anticipated that the interim dividend will be cut materially. Drax shares suffered after the UK Court of Appeal ruled that one of its power-generating units would not be eligible for a government contract that would have paid a guaranteed price for its electrical output over a number of years. Serco was in the news by default, in that it failed to submit certain criteria to enable it to bid for the Northern Rail train franchise. BP was thought to be at a disadvantage, through its stake in Rosneft, which as a Russian company, was at risk of sanctions being imposed by Western governments due to the military conflict in Ukraine. Legal & General released an interim management statement in which it reported a growth in its profits and a recommendation to increase the dividend by 21%.

On the macro front, CPI inflation fell to 1.6% in July from 1.9% in June. This fall was to a level below that of the consensus expectation and could be attributed to a fall in the rate of price inflation for clothing and food. Relatively cheaper consumer products should be helpful for the consumer. Their confidence can be gauged from the retail sales volume figures for July, which rose by 0.5% from the level in June and are now therefore 3.4% higher than a year ago. There is, however, a persistent constraint to higher levels of consumer spending and this comes from the continued weakness in wage growth. The rate of wage growth, excluding bonuses, fell to just 0.6% in June. This is the lowest rate of wage growth for many years and contrasts starkly with the rate of inflation for that same month of 1.9%. This low rate of wage growth has been used by The Bank of England as evidence of slack in the economy. Away from the consumer, industrial production figures for June were released that showed a monthly rise of 0.3% which was below the consensus of expectations. Related to industrial production are the UK’s trade figures. Data showed a widening of the trade deficit over Q2 to £6.9bn versus the smaller deficit of £5.5bn for Q1. This deficit has not been helped by the sluggish nature of exports which reflects the depressed state of much of the continental European economies.

It was another decent month for emerging equity markets as they continued their advance in August. Latin America was the best performing region, driven by strong gains being made by the Brazilian market. Mexico and Peru also performed well. Thailand was the best performing equity market in emerging Asia, on increased political stability following the coup in May. Stock prices in Taiwan also rallied, buoyed by good earnings results from the country’s technology companies. By contrast, China’s equity market struggled to gain ground after a spate of disappointing economic data. Performance in emerging Europe was mixed with weakness in Turkey and Russia being offset by strength in the Czech Republic and Poland. Apart from materials, all emerging market sectors were up on the month with healthcare and telecoms leading the gains.

Hopes of policy change in Brazil’s October 2014 presidential election and stronger economic momentum in Mexico were the main contributors for Latin America’s strong equity rally. A shift in presidential voting intentions was detected with the latest Datafolha poll (29th August) pointing to an election defeat for President Rousseff against Marina Silva. Political developments overshadowed negative news on the Brazilian economy as GDP data indicated the country entered a technical recession for the first half of this year. By contrast, the Mexican economy grew by a seasonally adjusted 4.2% year-on-year rate during the second quarter period of 2014, driven by industrial activities such as construction. President Nieto signed a package of laws that will serve as a rule book for comprehensive energy reform. Elsewhere in the region, Chile’s central bank cut interest rates by another 25 basis points to 3.5% and left the door open for a possible further reduction. However, interest rates were raised in Colombia in an attempt to withdraw monetary stimulus towards boosting the economy.

The threat of further Western sanctions and an escalation of fighting in east Ukraine dampened enthusiasm for Russian equities. Russia’s central bank widened the Rouble’s trading band, sending a clear signal that conflict in Ukraine will not derail plans to float the currency going into 2015. The central bank also promised to support domestic financial institutions hit by US & EU sanctions. Against an uncertain backdrop, Russian economic news held up well with healthy survey and good consumer data. Q2 earnings from Lukoil and Sberbank were strong with solid guidance. On the 30th August, the EU announced the Polish Prime Minister would be the next EU President. Turkey’s ruling Prime Minister Erdogan won the presidential election, securing 52% of the votes and extending his 12-year hold on power. Greece’s credit rating was raised two notches by Moody’s to Caa1, with the ratings agency citing an improvement to the government’s finances as a factor for the upgrade.

August was a positive month for Asian equity markets with most markets higher. In local currency terms the best performing markets were the Thai Stock Exchange and the Indian Sensex.

In China the recent positive momentum of economic data faded. After four consecutive months of gains, the preliminary HSBC manufacturing Purchasing Managers Index (PMI) data fell from July’s reading of 50.7 to 50.3 – a level that indicates a reduced level of expansion of the manufacturing sector. Aggregate financing fell to 237.1 billion with M2 money supply falling to 13.5%. The Chinese property market remains a key area of weakness in the economy. Government figures for July show that of the 70 major cities surveyed 64 new residential apartments experienced a decrease with existing residential prices lower in 65 cities.

The Thai stock exchange was the best performing index over the month as investors took comfort from ongoing positive political developments in the country and a strengthening of macro-economic data.

The market in the Philippines also provided investors with strong returns over the month with the Philippines Stock Exchange index gaining 2.7%1. A rebalancing of MSCI indices that saw the weightings of some Philippine stocks increase helped the index to rally higher. GDP growth for Q2 rose to 6.4% beating market expectations; however, the market seemed to ignore this and instead took the opportunity to take profits.

The Indian Sensex continued to make solid gains reaching further new highs by the end of the month. Expectations that the Indian government will help boost growth have helped to drive the index higher. GDP data released at the end of the month showed second quarter year-on-year economic growth of 5.7%, which beat market expectations.

In Indonesia Joko Widodo was confirmed as President following the Indonesian constitutional court’s rejection of a lawsuit filed by rival candidate Prabawo. The Indonesian equity market rallied on the news.

In Japan, the Topix was flat on the month, after falling initially on the back of geopolitical concerns the index rebounded into month end. Economic data released during August has continued to reflect the disruptive impact of the April tax hike. GDP for Q2 released over the month showed that the economy contracted at an annualised rate of 6.8%. This fall was, however, better than market expectations, which had expected a bigger drop. 

Returns were positive for all major areas of the bond market in August, driven by a strong rally in core government bonds. Escalating conflict in Ukraine and the Middle East increased investor risk-aversion. Some weaker than expected economic data pointed to diminishing inflationary pressure, also increasing the attraction of fixed income assets.

These broadly supportive factors overshadowed an uptick in hawkish sentiment within the US Federal Reserve (Fed) and the Bank of England, raising uncertainty about the likely timing of interest rate rises. The minutes of the Fed’s July meeting showed more support for a “relatively prompt move toward reducing policy accommodation”. In August the Monetary Policy Committee of the Bank of England broke a run of 35 unanimous decisions, with two of the nine members voting for a 0.25% rise. Conversely, rhetoric from the European Central Bank has raised anticipation of further accommodative action there, possibly including outright quantitative easing, to seek to counter increasingly widespread signs of deflation.

While there is an increasingly clear bifurcation in the path of growth and interest rate expectations for the US and the UK on one side, and the Eurozone on the other, recent data has not put extra pressure on the Fed and the BoE to hike. While US consumer confidence and employment growth remain robust, in July CPI fell to 2.0% from 2.1% in June. The UK unemployment rate fell to 6.4% in June and July service sector PMI data was strong. But headline inflation fell from 1.8% in June to 1.6% in July and wage growth remains very low. In August, the Eurozone Economic Sentiment Indicator fell to its lowest level since December 2013. In Germany the ZEW survey of economic expectations hitting a 20-month low in August.

The 10 year Bund had another strong month, its yield closing August down 27bps at 0.89%. But this move was part of a wider rally for interest rate-sensitive assets. According to data from Merrill Lynch, Gilts had a total return of 3.5% for the month while Treasuries returned 1.2%, Bunds 1.9% and Spanish government bonds 2.3% (all returns in local currency terms). Corporate bonds were also boosted, with credit spreads little changed. Sterling investment grade corporate bonds returned 2.9%. Within investment grade, non-financials returned 3.4% compared to 2.2% for financials. Higher credit risk sectors of the market, such as high yield bonds, felt the negative impact of the fall in risk appetite and underperformed the wider market. European high yield bonds returned 0.6%

I hope that you have enjoyed reading this post.

Stuart Yeomans 

CEO

Farringdon Group

Kuala Lumpur : Malaysia