December saw equities continue to make gains as analysts began to look through the US budget negotiations believing agreement was likely at the last minute, so offering some US fiscal policy certainty for 2013 and avoiding the so called “fiscal cliff” of an immediate budget balancing spending cuts and tax increases. Further support for risk assets was provided by signs that the Chinese economy is to return to a positive growth trajectory next year after GDP growth stabilised at 7.5% in 2012. Japanese markets were boosted by an opposition election victory and consequential monetary policy easing which is expected to target economic stimulus and higher inflation.
Currency markets saw most foreign currencies weakening against the Euro on increasing market confidence that the risk of a splintering of the single currency is becoming less likely in the short term. Further Quantitative Easing by the US Federal Reserve also weakened the dollar. The strengthening of the Euro eroded a significant amount of the underlying investment gains in non-Euro markets in December…..