Financial outlook

The news in November continued to support a favourable environment for equities. Economic growth is improving, interest rates are still low and the additional monetary stimulus of quantitative easing (QE) is continuing for the time being. In sterling terms, however, only Japan’s Nikkei 225 index and America’s S&P 500 index delivered strong positive returns over the month

Taper talk abating – Janet Yellen moved closer to becoming the first female Fed chair following her confirmation hearing. Given her dovish stance, it seems likely that the current QE policy will continue into 2014, and probably towards the end of the first quarter. QE’s stay of execution was prolonged even further when US consumer confidence took a hit in November.

Anything Janet can do, Mario can do better – Before this month’s meeting of the European Central Bank (ECB), the rumour was it might extend its stimulus through an extension to its cheap loans programme (known as LTRO). So with the market looking for more support for the banks, the decision announced by ECB president Mario Draghi to lower interest rates from 0.5% to 0.25% came slightly from left field.

Persian gulf narrows – Iran agreed to curb some of its nuclear activities for six months in exchange for loosened sanctions on goods including oil, gold and auto and aviation parts. Equities rose, while the prices of oil and gold fell. Improving relations could push oil prices lower if sanctions are lifted further.

Forward, fast – The UK recovery is taking hold. The economy grew 0.8% in the third quarter, led by household spending. Some commentators questioned how effective the Bank of England’s ‘forward guidance’ has been. Governor Carney defended the policy of linking interest rates to a 7% unemployment rate, saying businesses benefited from the certainty it provided. He also claimed forward guidance, like the Help to Buy scheme, is part of a suite of initiatives that may have boosted consumer confidence.

Grand coalition – It’s taken two months to form a coalition between Germany’s two largest parties – Angela Merkel’s CDU/CSU alliance and the centre-left SDP. For Mrs Merkel, the SDP is not an ideal coalition partner, as its pro-growth stance is at odds with Merkel’s preference for austerity measures.

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