31 Dec 2011: 2011 in review + Spanish deficit shoots up

2011 in Review: Markets

Almost $6.3 trillion was wiped from Global Markets this year as an impact of the Eurozone crisis. Global Market capitalisation dropped 12.1%, with Euro being the biggest loser as on 30th Dec, with a 10-year low against the Japanese Yen. S&P 500 proved to be mainly flat through the year, while FTSE 100 dropped 5.5%. Asian Equity markets have been particularly hit harder, with Japan’s Nikkei losing 17.3% this year, HK’s Hang Seng losing 20%, and Shanghai’s Composite losing 22% over the year. Japan’s Yen grew significantly in currencies against all its competitors, owing to its high demand as a ‘safe currency’. UK Gilts were the best performing major Govt bonds in 2011, returning 17%, with US treasuries at 9.8% and German Bunds at 10% returns. PIGS (Portugal, Ireland, Greece, Spain) countries were facing very high borrowing costs and, while Italy have managed to inject some hope of a recovery after their successful bond-auction in the last week, and Portugal, Ireland and Greece have been ‘rescued’ by the IMF, Spain is under intense pressure to cut its deficit. And while the US economy shows some signs of recovery, and the emerging markets have done well, the overall outlook remains glum heading into 2012, as there are fears of a ‘hard-landing’ for the Chinese economy.

  • Spain warns of deficit overshoot
    • Spain’s budget deficit is likely to reach 8% of GDP, which is much higher than expected or desired (~ Euro 20bn higher)
    • Annual public spend cuts of Euro 8.9bn, and tax rises of Euro 6bn were announced
    • It has not been made clear how exactly these cuts will be achieved, and analysts expect a loss in growth and hence a recession in Spain in 2012
    • This news will make it very hard for Spain to raise any debt, and all of it will come at a very high borrowing cost now
    • Spain’s deficit target is 4.4% for 2012, which seems unlikely to be achieved
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