February 2010
The New Year began positively, most likely on the back of some appetite for risk returning.
Corporate bond spreads narrowed and global equity indices advanced. However, towards the
end of the month global equities tumbled as President Obama stated his intention to reform
banking regulation and prevent deposit taking banks from undertaking any proprietary trading.
In the US, the Federal Reserve kept interest rates at 0.25% in January, and the overall tone
of the statement was a little more upbeat. Q4 GDP figures indicated the US grew at an
annualised rate of 5.7%. Producer prices increased as higher food costs impacted. Retail sales
fell over the month, suggesting that rising unemployment, tight credit and a struggling housing
market are holding back the country’s largest sector.
In Europe there was no change in the monetary policy stance and no new announcements
on the liquidity provisions at January’s European Central Bank meeting. Jean-Claude Trichet,
President of the ECB, continued to view the 1% rate as ‘appropriate’ and described inflation
pressures as ‘subdued’ given the uneven recovery. European consumer prices accelerated at
their fastest pace in almost a year as the cold weather caused oil prices to rise. Unemployment
had increased by the end of 2009, and PMI data declined as modest improvements in
manufacturing data were outweighed by falling services figures.