Plan Ahead for 2011
Now that final market figures for 2010 have been scrutinised, analysts are turning their attention to predictions for the year ahead. So, what should keen investors be looking out for in 2011?
We take a look at some of the recent developments in forex, commodities, equities and stock indices and discuss where the markets may be headed in months to come.
Forex
European sovereign debt worries weighed on the euro in 2010, bringing it down 7.66% against the dollar over the year. The single currency is also set for a massive refinancing of both public and private debt during the first half of the year. Fears of diminishing liquidity could lead to an unseemly rush to get debt issues resolved, dragging the euro down further.
Sterling had a challenging year in 2010, slipping 1% against the euro and reaching an all-time low against the Swiss franc. This year, the effect of sharp government cuts could lead to further lows. However, there are also indications that, while the first half of the year may be downbeat as a result of government austerity measures, economic recovery could be on the cards. Investors should not rule out upward revisions to UK growth expectations later in the year.
For the US dollar, economic data is key. A sustained improvement will boost the economy, whereas negative figures may lead to an extension of the Fed’s QE programme, weakening the currency.
Indices
The FTSE® 100 gained 9% throughout 2010 and started 2011 by pushing through the 6000 mark. Growth in manufacturing contributed to this positive start and, but factors such as an increase in VAT from 17.5% to 20% and an expected increase in unemployment could urge investors towards caution. UK consumer spending and house prices are also largely expected to remain weak during the first half of the year due to austerity measures.
In the US, December 2010 saw the S&P’s best performance for two decades, and the index gained 13% over the course of the year. The recent US trend towards improved economic data suggests that indices may have a good year ahead.
Equities
US investors are already showing themselves bullish on equities, and the recent rise in US stocks may be a signal that that all the disruptions in 2010 are now in the past. It seems investors are focusing on the future outlook, which looks fairly promising for the US at present.
In Europe, banks are likely to remain vulnerable as any worsening of the eurozone debt crisis could weigh heavily on the sector, pushing share prices down. UK retailers could also find things getting difficult if predictions about consumer spending and job losses are borne out. On the positive side, continued demand from China suggests that miners could be in for a bumper year.
Commodities
Growth in China looks set to keep commodities strong this year – although investors will be watchful for any hikes in interest rates, which may lead to slowing demand, weighing on commodity prices.
Oil - With oil prices approaching $100-a-barrel investors will be working out whether the growth signalled by rising prices is enough to outweigh the effect of fuel inflation on the global economy.
Precious metals - If the US recovery does pick up steam, then the price of gold could come under pressure. This would leave room for metals such as copper and palladium to perform well this year. However, any extension of the QE programme could drive gold and silver higher as investors seek solid assets to compensate for a weaker dollar.
Soft commodities - Soft commodities are also likely to grab some headlines. Cotton prices have already made news after failed crops in China and Pakistan took cotton prices to $1.39 a pound. Sugar is tipped to follow suit as its prices continue to soar to 30-year highs.
Looking ahead
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Updated: 06/01/11
The above comments do not constitute investment advice and IG Markets accepts no responsibility for any use that may be made of them.
