Economic Summary for the Week ended 25th April 2012

U.K. - The U.K. is officially back in recession as preliminary figures show the economy contracted 0.2percent in Q1.

The Office for National Statistics (ONS) confirmed GDP contracted in the first quarter in preliminary figures, which, following the previous quarter's contraction of 0.3percent, means the U.K. is considered to be in recession.

The figures confirm analysts' fears of a double-dip recession. The U.K. was last in recession in 2009 and, despite a strong 2010, has failed to recover in the way many had hoped. The ONS said the economy has shown no growth over the past year and has recovered less than half the output lost during the recession in 2008 and 2009.

Europe - A survey of eurozone banks has allayed fears that a credit crunch in the eurozone may be underway. Only a net 9percent of 131 banks tightened their lending conditions in the last three months, according to the European Central Bank's latest quarterly survey.

The data suggests that emergency loans provided by the ECB have helped stave off a sudden curtailment of lending. But ECB President Mario Draghi said that the outlook for the eurozone economy this year remained weak "Available indicators for the first quarter of 2012 broadly confirm a stabilisation in economic activity at a low level," he said.

Mr Draghi also warned that, despite the greater readiness of banks to lend, the demand for loans from businesses was likely to remain subdued.

Spain - Budget Minister Cristobal Montoro said Spain would damage European and global growth if it misses budget-deficit targets and threatened to take over the accounts of regions that don't reorder their finances.

"Spain's future and Europe's future are at stake because we are big enough to hurt the whole of Europe and to threaten the global economic recovery," Montoro told lawmakers in Madrid. The government will take all measures needed because "for all parts of the administration the deficit target is unconditional," he said.

"We have no reason to doubt the absolute commitment of the Spanish government to undertake the necessary reforms," European Central Bank President Mario Draghi told a European Parliament committee in Brussels. "Remarkable progress has been achieved and is being achieved."

India - India's sovereign credit outlook has been lowered to negative from stable by Standard & Poor's (S&P) on risks of slower economic growth and a widening current-account deficit, taking the nation a step closer to junk status.

"India's investment and economic growth have slowed, and its current-account deficit has widened," S&P said in a statement, reaffirming its BBB- long-term India rating, the lowest investment grade. "We are revising the outlook on the long-term ratings on India to negative to reflect at least a one-in-three likelihood of a downgrade."

Bonds fell, stocks declined and the rupee pared gains after S&P said India's rating could be lowered because of diminishing growth prospects, a deterioration in trade performance or slow progress on fiscal reforms. The Indian government has the widest budget deficit among the largest emerging economies, while the current-account shortfall reached an unprecedented USD19.6bn in the three months through December.

U.S. - U.S. companies from Apple Inc. to 3M co. are surpassing earnings estimates at the highest rate in two years as economic growth at home helps drive demand and counter a drag from Europe.

"The domestic economy is faring far better than people thought and that, even in the face of Europe and the slowdown in the emerging world, is blowing away estimates," said Jim Paulsen, chief investment strategist for Well Capital Management, which oversees approximately USD333bn.

Profits running ahead of forecasts may help ease investor concern that a shrinking economy in Europe and slower growth in China will weigh down earnings this year.

China - China's stocks rose for the third time in four days after Premier Wen Jiabao pledged to maintain steady economic growth and U.S. housing data bolstered the outlook for exports to the world's biggest economy.

"The government has the tools to stem a decline in economic growth and they will act when the situation worsens," said Li Jun, a strategist at Central China Securities Co. in Shanghai. "Earnings are still a major concern and will limit a rebound. Trading will be range-bound for the time being."

The Shanghai index has climbed 9.4percent this year amid speculation the government will take measures to boost the economy. "China has confidence that it will sustain steady and robust economic growth," Wen said "We will remain committed to reform and opening up."

Commodities - Gold fell to USD1,623.55 an ounce on Wednesday, the lowest level since April 5, on concern the political climate in France and the Netherlands may complicate Europe's struggle to contain the debt crisis. The Akshaya Tritiya festival, considered an auspicious day to buy precious metals, is celebrated today in India, last year's biggest bullion buyer.

"India's jewellery demand or physical interest from the world's top buyer is very slack in spite of the Akshaya Tritiya festival this week, which is a concern," Andrey Kryuchenkov, an analyst at VTB Capital in London, said on Wednesday, "Investor interest is limited."

Spotlight on: the importance of 'top-down' portfolio allocation

The key contributor to the growth in value of your client's policy is the portfolio of funds chosen both at outset and throughout the lifetime of the bond. Thus, if the bond is assumed to be the 'vehicle' used to achieve your client's saving goals, the funds chosen could be seen as the fuel needed in order for it to travel in the right direction.

However, the consequences of not spending enough time on portfolio construction can be far-reaching and extremely damaging to the value of your client's investment bond over its lifetime.

A common issue is an unknowing over-investment in a particular sector, asset class or geographic region, resulting in the value of the portfolio being largely dependent on the fortunes of the over-invested holding, a scenario at odds with the most basic principles of diversification.

It is particularly easy to become over-invested in a single area if attention isn't paid to the make-up of individual funds within a portfolio. As an example, many global equity funds follow leading indices that may be overweight in the Financial sector or U.S. Equities (for example) at any given time. In this scenario, a client that has another fund within their portfolio that invests solely in Financials, in a bid to diversify sector coverage, may unknowingly find themselves over exposed to the sector.

Just as important as the initial research and portfolio allocation is the on-going maintenance of the portfolio on a regular basis, in order to prevent the likelihood of 'portfolio drift'. Portfolio drift is an issue whereby the combined make-up of a portfolio of funds changes over time. If, for example, the manager of a single fund in the portfolio changes his outlook on the Healthcare sector and instead chooses to invest in the Construction sector, the overall make-up of the portfolio can become significantly different to how it may have looked when originally allocated, which, if done properly, should complement the client's risk/return profile.

Different advisers base their fund recommendations on varying factors. Some will favour particular fund managers, others might look solely at performance or independent ratings, whilst some may look at portfolio construction from a 'top-down' perspective - first deciding which asset types, sectors or asset types best suit their client's profile and building a portfolio of funds that meet these requirements. Top-down portfolio allocation, therefore, is concerned with selecting assets (initially, at least) on a purely macroeconomic basis, with further filtering (concerning preferred fund managers or performance for example) being a secondary part of the process.

In recognition of this and in order to assist brokers with their top-down fund selection process, Hansard has developed a new web-based fund application, available on Hansard OnLine now.

The new Unit Fund Centre (UFC) provides access to a wealth of fund information, enabling you to refine your research to those funds that best fits your client's needs, or your personal outlook on the global economy from a top-down perspective. The UFC also brings together each of the Hansard OnLine fund tools into one, central location.

For example, if you would like to view only those funds that hold stocks in the Telecommunications sector that have a geographical focus in the Asia Pacific region, the UFC will return a list of funds that meet this specific criteria. Of course, funds can also be grouped based on their sector currently and fund management group, for ease of use.

Once presented with the results, interactive performance and holdings data can be further researched to choose the right funds towards constructing a suitable fund portfolio.

Consensus amongst many of the world's leading asset managers suggests that the current unpredictability of the markets looks set to continue for some time to come. Only by understanding where your clients are invested during these times are you able to appreciate the vulnerability or stability of their fund portfolios during such turmoil - the UFC can assist you in doing this.

Economic Summary for the week ended 12th April 2012

Germany - Germany's economic expansion is increasingly home-grown, according to latest research.

Unemployment at a two-decade low, wages accelerating out of years of restraint and falling borrowing costs are spurring consumers in Europe's linchpin economy to spend more. Showcased by rising property prices, that's at odds with the rest of the euro area, where austerity and the bursting of debt-fuelled asset bubbles are forcing households to cut back.

Economists from HSBC Holdings Plc and BNP Paribas are responding by raising forecasts for German growth and declaring that domestic demand is emerging as a rival to exports as the economy's driver. The rejuvenation may help strengthen and rebalance the rest of the euro area, even as it makes it tougher for the European Central Bank (ECB) to set a 'one-size-fits-all' monetary policy.

Spain - ECB Executive Board member Benoit Coeure triggered speculation that the bank will revive its bond-purchase program to lower Spain's borrowing costs as the region's debt crisis threatens to boil over again.

Spanish "market conditions are not justified," Coeure, who heads the ECB's market operations division, said. "Will the ECB intervene? We have an instrument, the securities markets program, which hasn't been used recently but it still exists."

The euro rose and Spanish bond yields declined on Wednesday as Coeure's comments reassured investors that the ECB will act again if needed to stem the crisis. With Spain's three-month-old government struggling to reduce the budget deficit and crack down on overspending by regional administrations, borrowing costs have surged, nearing the levels that precipitated bailouts for Greece, Portugal and Ireland.

China - China's trade data for March has unveiled a mixed picture of growth in the world's second-largest economy. Exports grew by a more-than-expected 8.9percent during the month from a year earlier, indicating that global demand may be picking up.

However, imports grew by 5.3percent, down from a 39.6percent jump last month, raising fears about slowing domestic demand. The data comes as China has been trying to boost domestic consumption in a bid to rebalance its growth. "There is some evidence that domestic demand is showing signs of moderation compared to last year," Rajiv Biswas of IHS Global said. "Growth momentum has moderated due to monetary tightening last year and we are still feeling its impact on the economy."

India - India's economy may grow at near the slowest pace since 2009 this year as investment remains subdued, the Asian Development Bank (ADB) said.

Gross domestic product will expand 7percent in the year through March, the Manila-based lender said in its Asian Development Outlook 2012 report today, lower than a September forecast of 8.3percent. Investment is set to stay "lackluster for some time" after new project announcements fell, it said.

"The global environment remains fragile and a worsening of the situation in the euro zone would have a significant adverse impact," the ADB said. "A poor monsoon, fiscal slippage, or a continued policy stalemate to resolve some of the longstanding issues would also prove detrimental to growth."

U.S. - U.S. Federal Reserve Chairman Ben Bernanke has said the U.S. economy is yet to fully recover from the impact of the global financial crisis. Mr Bernanke said that more regulatory action was needed to ensure the stability of the financial markets.

However, he warned that as these procedures were put in place new risks might emerge. Mr Bernanke's comments come amid calls for a tighter control of the sector to avoid a repeat of the financial crisis. "Even as we make progress on known vulnerabilities, we must be mindful that our financial system is constantly evolving and that unanticipated risks will develop over time," Mr Bernanke said.

Commodities - Rising concerns about Spain's creditworthiness will trigger a fresh wave of interest in gold, spurring investors to buy a record quantity this year, a top precious metals consultancy has predicted.

Investors have lost enthusiasm for gold in recent months, as upbeat economic data from the U.S. have helped equities rally and damped hopes of further quantitative easing. The metal last week touched a three-month low of USD1,611.80 a troy ounce and on Wednesday was trading at USD1,659.

But Thomson Reuters GFMS said that gold would probably touch its lows for the year in the next few months. In its annual survey of the gold market, the consultancy predicted that gold bullion, which has surged more than 500percent in the past decade, would resume its upward trajectory in the second half of this year, hitting a record above USD2,000 within the next 12 months.

Spotlight on: Why a market correction is not on BlackRock's radar

Fears of a significant correction in equity markets are unfounded, according to BlackRock's Chief Equity Strategist for Fundamental Equities, Bob Doll, who says that there hasn't been enough poor economic data to cause a slump.

The FTSE and S&P 500 have fallen by 3.5 and 2.6 percent respectively since mid-March this year, prompting fears that the 2012 rally has already come to an abrupt end.

However Doll, chief equity strategist at BlackRock, believes a pull-back in equity prices will be modest at the very worst.

"We do not believe that fundamental macro conditions have changed enough, or at all, to warrant a downgrade of our view towards equities," he explained.

"For a couple of months now we have been suggesting that the strong advance in equity prices that occurred from last fall through mid-March may mean that markets were overdue for some sort of consolidation period."

"However, beyond the short-term choppiness, our constructive outlook boils down to the fact that monetary authorities remain accommodative even while leading economic data has improved."

"Given the current backdrop, we believe share price turbulence is more likely to reflect the consolidation of prior gains rather than the start of some sort of large downturn."

Doll says that although markets have been consistently volatile over the past three years, investors can take comfort from relatively low maximum losses during this time.

"Since the current bull market began in early 2009, we have seen many short-term corrections of around 5 to 7percent that have occurred without any serious worsening of fundamentals, so that range represents a possible starting point for any sort of near-term correction," he explained.

Last week saw the release of a disappointing U.S. labour market report for March, with payrolls growing by a less than expected 120,000. That said, the unemployment rate fell to 8.2per cent, its lowest level in over three years.

However, Doll believes markets have overreacted to this data, and says that at this point any pullback should be viewed as a potential buying opportunity, particularly for those with a long-term view.

He commented: "It is hard to deny the improvements we have seen in the global macro backdrop over the last several months. Notwithstanding March's slowdown, improvements in the labour market have suggested that the U.S. economy has appeared to be transitioning to a more sustainable trajectory."

"Additionally, despite the headlines last week over a troubled Spanish debt auction that renewed concerns over the situation in Europe, policymakers do appear to be moving down the correct path." While Doll acknowledges that various challenges remain, including the knock-on effect of a worse-than-expected recession in the eurozone, and a further hike in oil prices, he remains upbeat overall.

"On balance we continue to believe that the positives outweigh the negatives," he finished

Economic Summary for the week ended 5th April 2012

Global - World stock markets fell on Thursday after a weak Spanish bond auction inflamed concerns about the European debt crisis and hopes faded for more help for the U.S. economy from the Federal Reserve.

Benchmark oil rose above USD102 per barrel while the dollar rose against the euro but ebbed against the yen.

The debt crisis in Europe flared after a disappointing auction on Wednesday of government debt in Spain signalled investor confidence in the country's finances is weakening. That compounded worries that arose on Tuesday, when minutes released from the March meeting of the U.S. Federal Reserve's Open Market Committee gave no hint of a third round of bond purchases, dubbed quantitative easing III or QE3, to support the U.S. economy.

China - China, the world's second-largest economy, is looking to increase investment and competition in its financial and banking sectors.

On Tuesday, it almost tripled the amount that international fund managers can invest in China to USD80bn. At the same time, Premier Wen Jiabao told China National Radio that the monopoly of state-owned banks needed to be broken.

It is hoped that the shift may boost growth and create a more international Chinese currency.

Analysts have long said that opening up its financial markets was key to Beijing's efforts of pushing the yuan as an alternative to the U.S. dollar as a global reserve currency.

Spain - Spain is cutting EUR27bn from its budget this year as part of one of the toughest austerity drives in its history. Changes will include freezing public sector workers' salaries and reducing departmental budgets by 16.9percent.

The government says it will raise EUR12.3bn this year, aided by an increase in tax for large companies. Deputy Prime Minister Soraya Saenz de Santamaria said the nation was in an "extreme situation, our top priority is to clean up public accounts," she said.

"This is a moment that demands serious efforts to reduce spending but also structural reforms to cause the economy to grow and create jobs."

But economists are questioning whether the cuts will be enough to satisfy Spain's European partners.

Europe - European Central Bank President Mario Draghi said policy makers are prepared to act against inflation threats if needed, while assuring investors that the ECB doesn't plan to withdraw emergency stimulus any time soon.

"All the necessary tools are available to address upside risks to price stability in a firm and timely manner," Draghi told reporters in Frankfurt after the ECB held its benchmark rate at a record low of 1percent on Thursday. At the same time, it's premature to talk about the ECB's exit strategy, Draghi said, adding that the economic outlook is subject to downside risks and inflation will remain contained in the medium term.

Commodities - Gold fell to a 12-week low on Thursday, on signs that the Federal Reserve won't provide more U.S. economic stimulus, boosting the dollar and eroding the appeal of precious metals as alternative investments.

The Fed will hold off on increasing monetary accommodation unless economic expansion falters, according to minutes of a March 13 policy meeting released on Wednesday.

"The market has decided that yesterday's statement is probably the final nail in the coffin" for additional Fed stimulus, Frank Lesh, a trader at FuturePath Trading in Chicago, said.

Spotlight on: China's growing dependence on domestic consumption

Drip by drip, the financial data coming out of China is leading some to ask serious questions about which way this economy is heading. Purchasing managers are reporting falling factory activity, banks are reporting rising bad debts, and the property market is cooling dramatically. There are still plenty of "China bulls" around of course, those who think the economy will continue its ever-upwards, breakneck trajectory.

However, according to some commentators, there are a number of reasons why the bearish, negative voices are growing louder.

One place to look for troubling signs is China's factory sector, a part of the economy of course that has been at the heart of its recent success story, sending cheap goods around the world and creating jobs at home.

The tried and tested formula of Chinese manufacturing is being forced to be re-visited. A fall in demand and higher costs (most notably labour and materials) has meant that orders for many factories are moving to other countries such as Vietnam, Cambodia and India.

It is this kind of experience that is leading many, China's government included, to question whether the tried and tested model for growing the economy needs to change.

Booming exports and massive infrastructure spending have allowed the Chinese economy to expand by 9percent or more, for the best part of a decade, oblivious it seems to the global financial crisis. But just as the going is getting tougher for China's factories, so it is for the construction industry, the other main engine of growth, as property sales fall in cities across the country.

The recent batch of gloomy economic statistics, falling factory activity, falling property sales and falling earnings at key commodity producers, has rekindled the debate between China's bulls and bears. Which view is proved right in the end will depend on how successful China is in one particular regard.

If it can no longer export or build itself to prosperity then it needs to find salvation in its own people's pockets.

So the number one priority for this year is to stimulate domestic demand.

While that is easier said than done, we should of course keep things in context. Even the most bearish of predictions would still have the economy growing by 3percent or 4percent a year.That is a long way short of what China has become accustomed to, but an expansion that would, nonetheless, be the envy of any western country.

The government's own lowering of the growth target to 7.5percent (from the 8percent target in place since 2005) is an admission that things are changing. But it would be more than enough growth to satisfy those trying to do business in China.

Aston Martin is a luxury brand, one would think, unlikely to be opening car showrooms in China if it thought this economy was in for a hard landing.

Matthew Bennett, the company's regional director, spoke of their confidence in the domestic market at the opening of their brand new showroom in Pudong, Shanghai. "This is the largest showroom that Aston Martin has in the world," he said "It's a real statement of our intent and the dealer's intent on the long term future of our market in China," he adds.

Whatever dark clouds might be looming on the economic horizon, it seems China's car-loving millionaires do not see any reason to stop spending just yet.