Guest Blog Seven Investment Management 150pxIn our regular feature Seven Investment Management (7IM) look forward and assess what the month ahead might hold for the world’s largest economies.

Whether you are invested in the UK or overseas, in stocks and shares or fixed interest assets, read on to discover the latest insights from one of the UK’s most respected investment managers.

We’d love to hear your thoughts, why not leave your comments at the end of the article?

 

United Kingdom

Issues Outlook
The speed of the decline in the unemployment rate appears to be slowing as it approaches 7%. Expect the readings for the next couple of months to be around 7.1%. The UK economy will continue to recover; however, enthusiasm about job creation may be premature. We may have now reached the stage where the most eligible candidates have been re-employed. With the cream having been picked off, it will take longer for the tail of those who have been out of work for longer to enter the job market again.
The insurer Standard Life has announced its intention to leave Scotland if it were to become independent. Similar statements may follow. It almost seems that by the time September 18th comes around, the various parts of the (currently) United Kingdom will be thoroughly sick of debating the pros and cons. However, the idea of a loss of major industries may tip the balance come the Autumn.

North America

Issues Outlook
Much of February’s economic data releases have been sub-par (most notably the downward revision of Q4 US GDP growth to 2.4%) and many investors are blaming the extreme weather in January. The economic releases in the next couple of months have a heavy burden to bear. Marked improvement will be needed to convince the markets that the US economy is robust enough to stand up ton continued tapering. For the time being, equities should continue to be given the benefit of the doubt.
The new Chairwoman, Janet Yellen, appeared before the Senate for the first time. Ms Yellen’s comments suggest that the Fed is going to continue its tapering of asset purchases until it sees incontrovertible evidence that the US economy is suffering a real change in momentum.
Employment data in the US saw an increase in the participation rate last month, for the first time in a couple of years. An increase in the participation rate is a healthy indicator that the overall economy is becoming productive. This gives weight to our view that US economic data should improve this month.

Europe ex UK

Issues Outlook
With the February announcement of Eurozone CPI inflation at 1% (as opposed to 0.8% forecasted), the market appears to have stopped worrying about deflation. This strikes us as a bit premature. This is one positive data point that bucks the trend of the last 18 months – and even this “positive” news leaves Eurozone inflation at half of its 2% target. A slowing rate of price increases may seem like good news, but in the long term (as Japan proved throughout the 90’s) spells disaster for an economy. Expect inflation to remain low.
The European Central Bank releases its internal 2016 inflation forecasts at the same time as its monetary policy. The ECB will most likely keep rates on hold; although some gentle indications that they are monitoring the situation and prepared to act may be given by President Draghi in the post-meeting conference.

Other markets

Issues Outlook
The People’s Bank of China, arguably one of the most powerful central banks in the world, has started to make waves. Since the middle of 2010, the PBC has been content to let the Renminbi gradually appreciate against the US Dollar – by about 14% over the past three years. However, since the middle of February the PBC has been buying more Dollars – weakening the Renminbi by 3%. This may be more of a reminder to the world than the beginning of extra-loose policy; but is something to be watched closely.
Three years after the tsunami and the problems at Fukushima, Japan’s Prime Minister, Abe, is looking to turn the nuclear reactors back on. The immediate backlash from Fukushima, where the Japanese government vowed to shut down all of its reactors, was emotional rather than rational. Japan has very few natural resources, and historically 30% of its power has been nuclear-generated. These kinds of positive steps should help its current account balance too.

Indicators

Present Situation Next Meeting Expectation Source
Bank of England 0.5% 6 March No change in interest rates Click here
US Federal Reserve 0% – 0.25% 19 March $10 billion a month in “tapering” to continue Click here
European Central Bank 0.25% 6 March No change in interest rates Click here

Seven Investment ManagementThe views expressed in this document are for information only and do not constitute investment advice.

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