Buoyed by encouraging economic data from the US, many leading equity indices started June relatively strongly but investor sentiment was then undermined by reports of escalating conflict in Iraq. Share prices declined and the price of oil surged to its highest level since September 2013.
Larger UK companies generally performed better than their smaller counterparts over the second quarter of 2014. The benchmark FTSE100 index fell 1.5% during June but rose 2.2% over the second quarter of 2014. The FTSE250 index fell 1.8% during the month and 3.4% over the quarter while the FTSE SmallCap index fell 0.9% during June and 0.7% over the quarter.
At the time of writing, the FTSE100 stands at 6865 – just 65 points behind its all time closing high of 6930, reached back in December 1999. Just a 2% rise would see it exceed the milestone of 7000.
Ireland’s economy returned to growth in the first quarter as pressure mounts on the Irish government to ease austerity after years of spending cuts and tax increases. Gross domestic product rose 2.7%, the most since the end of 2012, while the decline in the previous quarter was revised to 0.1% from the 2.3% initially reported.
Europe attracted much of the limelight early in June, following the news that the European Central Bank had cut the eurozone’s benchmark interest rate to 0.15% and announced a negative deposit rate for banks in a bid to encourage them to lend. The eurozone’s economy grew at a quarterly rate of just 0.2% during the first three months of 2014 and the region’s rate of inflation fell to 0.5% in May, remaining unchanged in June.
In the US, news that the unemployment rate has fallen below 6.1% for the first time since September 2008 sent the Dow Jones Industrial Average above a record 17,000. The country’s economy contracted by 2.9% during the first quarter of 2014 although much of that fall was caused by exceptionally wintry weather and growth is widely expected to have rebounded during the second quarter. The US Federal Reserve trimmed its forecast for economic growth this year to a range of 2.1% to 2.4% but expects expansion of as much as 3.2% next year.
Unlike most other major equity markets, Japan’s benchmark Nikkei 225 index rose strongly during June, posting a monthly increase of 3.6%. The country’s economy expanded more strongly than previously calculated during the first quarter of 2014, aided by robust levels of business investment. Consumer prices rose at an annualised rate of 3.4% during May, boosted by an increase in consumption tax that took effect in April.
The Nationwide reported that UK house prices have risen above their peak of 2007, after prices climbed 1% in June and were up 11.8% from a year earlier. The building society said the average value of a UK property was £188,903, but in London it had surpassed £400,000 for the first time.
Meanwhile, the Bank of England revealed measures designed to curb higher-risk mortgage lending. In particular, lenders will not be allowed to lend more than 15% of residential mortgages at loan-to-income ratios at or above 4.5 and they will also have to assess whether potential borrowers will be able to cope with higher interest rates. Bank of England governor Mark Carney indicated a “new normal” for the UK’s base rate could eventually be around 2.5%.
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