The Month Ahead

Welcome to our summary of the highlights from last month and analysis of key indicators coming up in January 2012.

After a weak first half of December, the FTSE eventually enjoyed a Santa rally in the run to the end of the year, and this momentum did carry on for the first couple of trading days of 2012. For a change, markets had a slew of positive data to kick off the new year with strong manufacturing data from China, India and Australia prolonging the festive feel-good factor.

It feels like all financial markets have had a rest from European concerns in recent weeks – but focus is already switching back across the Channel. On 9 January there is a meeting between France and Germany discussing among other things the austerity plans for European governments – and this month has already seen the euro slip to its worst levels since September 2010. Expect more euro news to dominate market sentiment in January. There is also the additional concern of crude oil at eight-month highs and the potential pressure this will put on the already-fragile global economic recovery. With just these two factors, sudden bursts of volatility across all assets may well be the norm again for at least the first few months of this year.

FTSE ends year in the red

Despite a strong performance in the second half of December, it is no real surprise that 2011 ended up being a negative year for the FTSE 100, ending down by around 8%. Of course this does not paint the picture of the incredible volatility seen for the UK’s blue-chip index last year, with August the standout month as European concerns spooked investors.

The index has started 2012 pushing out to its best levels since the end of October – when markets rallied sharply as the Greek debt crisis seemed to be finally resolved. This proved short-lived though, and sentiment once again faded ahead of the 5800 mark, and this remains the big obstacle to significant upside for the month ahead.

Euro dives into 2012

Another unsurprising fact is that 2011 was a negative year for the euro – but the more casual observer may be shocked to hear that it only dropped by 3% against the US dollar over the 12 months. It really was a year of two halves for the single currency – in May it was above 1.4900, but lost 2000 points by the end of December.

After a quiet start in January the familiar concerns – Greek default; rising bond yields; exposed banking sector – are once again making headlines, and have seen EUR/USD slip to its worst level since 2012. It is still one of the main markets to watch in 2012 and for now at least the familiar weakness is still continuing.

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