Plan Ahead for 2011
Now that final market figures for 2010 have been scrutinised, analysts are turning their attention to predictions for the year ahead. So, what should keen investors be looking out for in 2011?
We take a look at some of the recent developments in forex, commodities and stock indices and discuss where the markets may be headed in months to come.
Forex
European sovereign debt worries weighed on the euro in 2010, bringing it down 7.66% against the dollar over the year and toppling it from all-time highs against other major currencies. The single currency, which recently extended its reach into Estonia, is also set for a massive refinancing of both public and private debt during the first half of the year. Fears of diminishing liquidity could lead to an unseemly rush to get debt issues done and dusted, dragging the euro down further.
Sterling had a challenging year in 2010, slipping 1% against the euro. This year, the effect of sharp government cuts could lead to further lows over the next few months. However, there are also indications that while the first half of the year may be downbeat as a result of government austerity measures, economic recovery could be on the cards. Investors should not rule out upward revisions to UK growth expectations later in the year.
For the US dollar, much depends on the nature of economic data in coming months. A sustained improvement will boost the economy, whereas negative figures could well lead to a renewal of the Fed’s QE programme and a weakening of the currency.
Indices
The FTSE® 100 gained 9% throughout 2010 and started 2011 by pushing through the 6000 mark on the back of positive manufacturing data. Growth in manufacturing is a positive indication of recovery, but factors such as an increase in VAT from 17.5% to 20% and an expected jump in unemployment could urge investors towards caution. UK consumer spending and house prices are also largely expected to remain weak during the first half of the year due to austerity measures.
In the US, December 2010 saw the S&P’s best performance for two decades, and despite taking a nosedive in July the index managed to gain 13% over the course of the year. US economic data will be key to performance in 2011, and the recent trend towards improving figures suggests that indices may well have a good year.
Commodities
2011 looks set to be a strong year for commodities with growth in China expected to continue. The only spanner in the works could be hikes in China’s interest rates which may lead to slowing demand, weighing on commodity prices.
Oil is popular as ever and with prices approaching $100-a-barrel investors will be working out whether the growth signalled by rising prices is enough to outweigh the effect fuel inflation will have on the global economy.
Precious metals investors will be keeping a sharp eye on the US economy, because if recovery does pick up steam, then the price of gold could come under pressure. This would leave room for metals such as copper and palladium to perform well this year. However, any extension of the QE programme could drive gold and silver higher as investors seek solid assets to compensate for a weaker dollar.
Soft commodities are also likely to grab some headlines. Cotton prices have already made news after failed crops in China and Pakistan led to an 80% rise in the commodity price, taking it to $1.39 a pound. Sugar is tipped to follow suit as its prices continue to soar to 30-year highs.
Looking ahead
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Updated: 05/01/2011
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