Perspective News

September proved another rough month for markets, amid mounting concerns about the state of the global economy and the possibility Greece might default on its loans. The FTSE 100 index fell 4.9% during September and 13.7% over the third quarter of 2011. In Europe, the German DAX and French CAC 40 indices both fell by more than 25% over the quarter, and posted substantial losses during September, while the beleaguered Athens Stock Exchange posted a massive drop of 37.6% over the third quarter. Meanwhile, in the US, the Dow Jones Industrial Average index fell 6% during September and 12.1% over the quarter.

The International Monetary Fund (IMF) warned that the global economy is in a “dangerous new phase” and forecast “weak and bumpy expansion” for developed economies. The IMF expects the global economy to grow by 4% during 2012, compared with its previous forecast of 5%. For its part, the Organisation for Economic Co-operation & Development (OECD) expects growth in major economies to lose pace by the end of 2011, although it does not foresee “a downturn of the magnitude of 2008/09”. The OECD cut its forecast for economic growth among the G7 group of richest nations to 0.2% for the final quarter of 2011.

September saw five central banks – the Bank of England, the US Federal Reserve, the Bank of Japan, the European Central Bank (ECB) and the Swiss National Bank (SNB) – announce synchronised action to support the financial system. In addition, the SNB attempted to weaken the Swiss franc by imposing a minimum exchange rate of 1.2 Swiss francs to the euro. The “current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy”, warned the bank, adding it was prepared to buy foreign currency in “unlimited quantities” to secure the minimum rate.

Towards the end of the month, Germany’s parliament voted to support the expansion of the European Financial Stability Facility (EFSF) to help shore up struggling eurozone economies. As the month drew to a close, officials from the European Commission (EC), the ECB and the IMF returned to Athens to decide whether Greece should receive its scheduled bailout funds. Moving into October – a month that has seen more than its own fair share of market turmoil in the past – analysts are likely to study corporate earnings announcements intently for evidence of whether or not individual companies are starting to feel the effect of the uncertainty.

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