Will France's downgrade set the tone for a volatile 2012?
It seems like only yesterday I was raising my glass to 2012 - forgetting the words to Auld Lang Syne and promising to run to work every morning and eat five bits of fruit each day. Two weeks later, I’m back on the sausage sandwiches and having spoken to a number of respected economists bracing myself for a tough 2012.
The eurozone debt crisis remains unresolved and after a relatively quiet start to the new year, ratings agency Standard & Poor’s dealt the first major blow to sentiment when it stripped France of its treasured AAA credit rating and downgraded eight others in the region.
It was a harsh reminder that the crisis is far from over, and with no resolution in sight, I am told the region’s woes are likely to continue to cast a shadow over markets in the coming weeks.
The economists I have spoken to this week are divided on whether the UK is heading back into recession in 2012, and it looks to be a very close call.
One potential bright spot this year is inflation. Consumers hit by an unpleasant cocktail of high inflation, low wage growth, and rising unemployment in 2011 can at least be heartened that the first is expected to slow significantly this year, after hitting a high of 5.2pc in September.
On the commodity front, gold bugs have been suffering as the dollar soared in the second half of last year. However, the greenback’s purple patch might be coming to an end – and this is good for commodities.
Commodities and the dollar typically have an inverse relationship, as a stronger dollar makes dollar-denominated assets more expensive to buy in other currencies. This includes gold – which look set to continue its recovery over the next few days. Traders are now expecting the price to rally. A survey last week by consultancy PwC showed industry figures expect the price to hit $2,000 later this year. They are not alone.
The oil price should really be falling, as US oil stocks soared by 5m barrels and worries over a double-dip recession stalk the globe. But we can always rely on a bit of Middle Eastern sabre-rattling to keep the price belying fundamentals.
Iran is – yet again – threatening to close the Strait of Hormuz and it looks like more sanctions are on the cards. However, Brent shows no sign of dipping down to a sub-$100 a barrel level for some time. Oil prices are going to stay high.
World food prices fell 2.4pc in December, led by grains, sugar and oilseeds – but falls got worse at the end of last week. Prices of corn, soybean and wheat slumped the most in three months after the US forecast bigger inventories than expected. There could be a dead cat bounce in the price next week, but the trend looks lower.
On the corporate front, a number of senior figures have told me that one stock to watch is Man Group, the world’s largest listed hedge fund. Analysts have rounded on the company in recent weeks - cutting their earning forecasts on the group and warning of further outflows of funds. Earlier this month, JP Morgan Cazenove, Credit Suisse and RBC all downgraded their estimates on the hedge fund, which will be desperate to convince investors that it can withstand the current economic downturn. Time to short?
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