Investment Newsletter December 2015
Rallying Around Mike Deverell Partner & Investment Manager
It’s now midway through December and so far there’s been no sign of a Santa Rally! The FTSE 100 ended November at 6,352 and at close on 11 December it was at 5,952. As has often been the case in the past year or so, the poor performance in the FTSE has been driven largely by falling commodity prices which in turn has hit mining and oil stocks. Oil, in particular, has fallen around 10% in the past few days and Brent Crude fell below $40 a barrel for the first time since the financial crisis. The slumping price came after the recent OPEC (Organisation of Petroleum Exporting Countries) meeting ended without any agreement to cut production. Whilst too much supply is one reason for the low price, especially after the shale revolution in the US, in our view it is only part of the picture.
Demand for oil has also slumped. This is partly due to long-term factors such as the switch to alternative energy sources, but it might also be telling us something about the health of the global economy. The FTSE also reacted badly to the European Central Bank (ECB) not increasing quantitative easing as many had expected. Meanwhile, in America, markets think there’s an 80% probability that interest rates will go up this week. All of this is causing plenty of market volatility and is a reason for caution. In essence, it’s a convoluted and not particularly pretty macro picture right now, and much of what affects the FTSE are these global issues rather than UK or company specific issues. Given the market drop we have carried out another of our “volatility trades”, purchasing an index tracker for
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