Outlook - March 2012

World

Sentiment continues to improve

The positive start to the year by global equities and commodities has continued as markets move into 'risk on' territory.

The key drivers behind markets remain improving investor sentiment, strengthening stream of encouraging economic data and the injection of liquidity keeping the global banking sector alive.

The oil price has risen to the highest level since 2008 as US and European sanctions on Iranian oil continue to add to supply concerns. In Europe, the 'can' appears to have been picked up and thrown down the road as eurozone finance ministers, private sector bond holders and Greek politicians finally come to an agreement that will see Greece receive a second €130bn bail-out package that will avoid a Greek default when €14.5bn in debt is due to be repaid on 20 March. What's next on the agenda for the eurozone? Germany is now likely to face pressure from fellow euro members, former allies and the International Monetary Fund to allow the size of the eurozone's permanent bail-out fund, the €500bn European Stability Mechanism (ESM), to increase in size and provide further support to stem the eurozone's debt crisis, a move the Bundestag have insisted is not necessary.

The US continues to provide a guiding light through continued uncertainty from all corners of the globe. While high beta, small cap stocks have outperformed recently, we continue to believe the best long-term equity strategy is one that focuses on companies with robust business models and global franchises (the New Nifty Fifty). Good quality corporate bonds will also benefit from the increased liquidity that has been driving markets.

UK

Bank of England push the QE button

As expected, the Bank of England increased its asset purchase programme (quantitative easing(QE)) by another £50bn in February, which was voted through unanimously by all nine MPC members.

This decision was supported by inflation falling for the fourth month in a row in...