Global Markets

2009 is over and the market data are in. The end results do not reflect what a turbulent year it was. As 2009 began, equities picked up where 2008 ended and continued to plunge. After reaching their lows in the first week of March, equities began to climb — and while stocks have turned in impressive gains since then, few have reached their ‘pre-Lehman’ levels of September 2008. Of the majors, only the FTSE was above that level at year’s end. Still, gains were wide with all indexes followed here up in double digits with the exception of Topix. And the dollar lost ground against all major currencies with the exception of the yen.

During 2009, central banks completed their policy interest rate declines begun in 2008 with many sinking to new record lows — among them the Bank of England and the European Central Bank. But what was defined as ‘bottom’ varied. While the ECB found bottom at 1 percent, the BoE sank to 0.5 percent. But the Fed joined the Bank of Japan with a virtual zero interest rate with a range of zero to 0.25 percent. The BoJ sank to 0.1 percent. In contrast, the Reserve Bank of Australia found bottom at 3 percent — and has already increased its policy rate to 3.75 percent while other banks appeared mired at their lows.

Global Stock Market Recap

Global Stock Market 2009 Quarterly Recap

Europe and the UK

After a dreadful first quarter, equities turned around and scored impressive gains for the rest of the year. The third quarter was the star recording gains of 18 percent for the DAX and 21 percent for both the CAC and FTSE. The DAX climbed over 6,000 on December 29, but failed to hold on and ended the year just under that critical level. The index last traded over the 6,000 level on September 26, 2008. The FTSE on the other hand became the first major index among the biggest developed economies to recover its losses and trade above its pre-Lehman level and ended the year above 5,400.

On the year, the DAX gained 23.8 percent while the CAC was up 22.3 percent and the FTSE, 22.1 percent. But over the decade, the FTSE dropped by 22 percent from its record peak of 6,930.2 reached on December 30, 1999. During the same time, the DAX is down 14.4 percent while the CAC has plunged by 33.9 percent.

Trading over the past two weeks has been light as one would expect given holiday closures. Investors busied themselves with window dressing for end of year positioning and to lock in profits. There was little new economic data to interest investors that were still trading.

Asia/Pacific

Without question, Asian/Pacific equities and especially the emerging markets indexes were the best performers. Only the Bolsa and Nasdaq rival those in Asia with about a 45 percent increase. The best performers were the Jakarta Composite, up 87 percent, and the Sensex, up 81 percent. The Shanghai Composite was up 80 percent and the Taiex followed with a 78.3 percent increase. The All Ordinaries increased a stately 33.4 percent. Equities in Japan were the poorest performers in the region and of those followed here. The Topix trailed all, gaining a meager 5.6 percent on the year while the Nikkei gained a passable 19 percent — slightly below the Dow. The tepid performance is a poignant reminder that the after effects of the financial collapse continue to linger.

Not surprisingly, the best year-end performers were indexes that resisted the virtually worldwide first-quarter plunge in equities. They include the Taiex, Kospi, PSEi, Jakarta Composite and the Sensex. The Topix declined three of four quarters including the fourth quarter while the Nikkei managed to gain in each quarter with the exception of the first. On a quarterly basis, the Shanghai Composite outperformed its Asian counterparts in the fourth quarter, gaining 17.9 percent. For the record, all indexes were up for the month of December. Only the Topix slipped on the week.

An historical note — it is now 20 years (1989) since the Nikkei reached 38,915 to end the year. The Nikkei is down about 70 percent from that level. There have been changes since then. For example, cross shareholdings have declined and at many companies, individual and foreign investors have replaced banks and insurers as the major shareholders.

The new Japanese government has set an economic growth target of more than 2 percent for the coming decade. This is considerably faster than the Bank of Japan’s current growth estimate. But while the government has called the target reachable, analysts voiced skepticism noting that the economy hasn’t averaged an expansion rate of 2 percent or more since the 1980s. The government previously had unveiled a record budget of ¥92.3 trillion for the fiscal year starting April as well as a stimulus package (on December 8) to sustain the country’s recovery.

Currencies

The U.S. dollar has been in focus for much of the year. It was a refuge for investors fleeing to safety in the aftermath of the financial implosion. As risk aversity waned, the currency was used to finance carry trade transactions with countries such as Australia with higher interest rates. The dollar’s decline is not something that has occurred recently. Rather, it has been trending downward, especially against the major currencies since February 2002. The trend is particularly evident in the graph above. The major currencies included are the euro, Canadian dollar, Japanese yen, British pound, Swiss franc, Australian dollar, and Swedish krona. The broad index includes 26 trading partners.

The U.S. dollar edged up against the euro and gained strongly against the yen as traders continued to bet that a promising economic recovery would support the currency in 2010. Year-end buying helped the dollar to achieve its best level against the yen since early September. Concerns about Japan’s fiscal health also weighed on the yen amid fresh anxiety about the country’s debt burden.

The dollar was up against virtually all currencies in December as traders speculated that the interest rate gap between the U.S. and the EMU would narrow in 2010 as the recovery gathered steam. For much of 2009 the dollar was out of favor. Most analysts thought that the Fed would be among the last of the central banks to unwind its quantitative easing measures. However, the debt problems in Europe — and especially in Greece and Ireland — combined with dovish Japanese rhetoric to help the dollar rebound from a yearly low against the euro and a 1995 low against the yen.

Japanese monetary authorities did not intervene in the foreign exchange market during 2009 and extending the intervention free period to 69 months — since March 17, 2004.

Selected currencies — weekly results

Indicator scoreboard

EMU

M3 money supply for the three months ending in November was up 0.6 percent when compared with the same three months a year ago. For the month of November, M3 was down 0.2 percent on the year. Once again it was weakness in the key private sector lending counterpart that put downside pressure on M3. Annual growth in lending remained strongly negative at minus 0.7 percent, within which loans to non-financial corporations was minus 1.9 percent after declining 1.2 percent in the year to October. However, there was some slightly more positive news on household borrowing which posted an annual 0.5 percent growth rate, up from minus 0.1 percent in the previous month.

France

Third quarter gross domestic product was up and unrevised 0.3 percent and was down 2.3 percent when compared with the same quarter a year ago. As indicated earlier, the entire increase was attributable to net exports. Export volumes climbed 1.7 percent on the quarter and imports were up just 0.4 percent and together added fully 0.3 percentage points to the bottom line. Private sector domestic demand edged up a meager 0.1 percent while gross fixed capital investment was down 1.4 percent. Public sector current expenditure was up 0.7 percent. As a result, excluding stocks, domestic demand contributed nothing to quarterly growth.

Italy

November producer prices were up 0.3 percent on the month but down 3.5 percent when compared with last year. Not for the first time, headline prices were led higher by rising energy costs, up 1.8 percent on the month. Other sectors however, were considerably more subdued. Prices of intermediates edged up 0.1 percent on the month while those of consumer goods slipped 0.1 percent.

Asia/Pacific

Japan

November unadjusted merchandise trade balance recorded a surplus of ¥373.9 billion. This was the 10^th consecutive trade surplus. Exports dropped 6.2 percent while imports sank 16.8 percent when compared with last year. Exports have now declined for 14 consecutive months while imports have dropped for 13 months. Exports to the U.S. which have now dropped for 27 months in a row were down 7.9 percent on the year. Similarly, exports to the EU have declined for 16 months and were down 15.9 percent. However, exports to Asia were up 4.7 percent for the first increase in 14 months. Imports from the U.S. were down 19.8 percent while they declined a more moderate 8 percent from the EU when compared with last year. Imports from Asia dropped 16.8 percent. On a seasonally adjusted basis, the trade surplus was ¥492.4 billion, up slightly from October’s surplus of ¥460.8 billion. On the month, exports were up 4.9 percent while imports were up 4.7 percent.

November unemployment rate edged up to 5.2 percent from 5.2 percent in October. The number of unemployed was 3.31 million, up 750,000 or 29.3 percent from last year. The number of employed was 62.60 million, a decline of 1.31 million or 2 percent from the same month a year ago. The employment rate dropped 1.2 percent on the year to 56.6 percent. While the unemployment rate was up a notch, the reason it is not still higher is because of the exodus of people leaving the labor force.

Household spending was up 2.2 percent in November when compared with the same month last year. This was the fourth consecutive increase and higher than analysts’ estimates. On the year, spending on food dropped 0.9 percent while clothing & footwear sank 4.3 percent and transportation & communication was down 1.4 percent. Spending on all other categories was up on the year. The largest gains were for furniture & household expenditures and education – both were up 9.3 percent on the year. Medical spending was up 6.2 percent while housing jumped by 5.9 percent. However, the outlook for spending remains bleak as jobs continue to be hard to find and deflationary pressures point to further erosion in nominal incomes.

November national consumer price index was down 0.2 percent on the month and down 1.9 percent when compared with the same month last year. On the year, prices in most categories declined. Only prices for education were up on the year. Excluding just fresh food, the CPI was down 0.2 percent on the month and declined 1.7 on the year. On the year, this was the ninth consecutive decline. Excluding both fresh food and energy, prices edged down 0.1 percent on the month and were down 1 percent on the year. Prices for goods were down 0.5 percent on the month and 3.3 percent on the year. Services were down 0.1 percent on the month and 0.4 percent on the year. December Tokyo CPI, which is often seen as precursor to the national index, was down 0.2 percent on the month and dropped 2.3 percent on the year. Excluding fresh food, the index was down 0.2 percent and 1.9 percent on the year.

November industrial output was up a greater than expected 2.6 percent on the month. It was the ninth consecutive monthly increase. On the year, output was down 5.2 percent, a vast improvement from the 14 percent decline in October. The main contributors to increased output were transport equipment, general machinery and other. Commodities that contributed to the increase were all automotive related including both large and small passenger cars and drive, transmission & control parts. According to MITI’s Survey of Production Forecast in Manufacturing, production is expected to increase 3.4 percent in December and to increase 1.3 percent in January.

November retail sales dropped 1 percent on the year. This was the 15th consecutive decline. Sales at large scale retailers plummeted 9.6 percent after sinking 7.2 percent in October as falling employment and declining disposable income continues to pressure retail sales.

Bottom line

2009 ends with signs of a global recovery — but there are still trepidations about its strength and pervasiveness as central banks contemplate ways to withdraw the exceptional monetary stimulus in place.

2010 marks the first year of a new decade (or the last year of a decade to some). A fresh onslaught of new economic data will arrive with the first week of the New Year including the U.S. employment report, and Europe begins to catch up on reports delayed because of the end of year holidays. And the Bank of England meets Thursday. Monetary Policy Committee discussion is expected to revolve around just how effective their quantitative easing has been.

Looking Ahead: January 4 through January 8, 2010

Anne D Picker is the author of International Economic Indicators and Central Banks.