The Global Month Ahead – An insight into August 2014

Posted on August 11th, 2014 | Categories - Financial News

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 IMF warned this month that were the Pound to strengthen any further, it would begin to harm the nascent recovery here in the UK. The IMF seems to have a habit of mistiming public statements about the UK economy – last year it stated that austerity would hurt UK GDP growth, which now stands at a developed-world leading 3.1%. Similarly with this call, over the past month, Sterling has depreciated 2% against the Dollar – as US growth gets back on track, we believe that the Pound will keep getting weaker.
UK growth should continue to be strong in the third quarter. The various sentiment surveys have indicated that Q3 2014 should be good; we won’t have figures until October, but the services sector is likely to grow strongly.
Scotland’s “Braveheart” moment comes closer. After a successful Commonwealth Games, Scottish Independence may have been given a boost. A “No” vote is still our central case, but September 18th could be exciting.

North America

Issues Outlook
GDP growth at 4% in Q2 (first reading only though!) was a relief for investors. US GDP growth rebounded strongly, but now investors will be looking for evidence that the economy is able to maintain its growth momentum. Early indicators are good, and we would expect to see another payrolls print above 200k at the end of August.
The 2000 level on the S&P 500 is now 40 points further away than it was at the start of July! Equity markets are a bit jittery at the moment – after a five year bull market and with geopolitical tension running high at the moment, psychological barriers are going to be difficult to overcome. With the end of QE coming closer, it is difficult to see a catalyst to push the S&P above 2000 in August. Nevertheless, the recent decline should prove to be temporary; company earnings are looking very healthy in the US.

Europe ex UK

Issues Outlook
Banco Espirito Santo was pretty unheard of about three months ago. Since then, it has been in the headlines almost every day – but what does the future hold? A Portuguese bank going bankrupt, wiping out its shareholders and junior bondholders in the process would have seen riots in the streets in 2011. Now however, the ECB’s bank bailout mechanism has functioned effectively and stopped any real contagion. Further deterioration in Espirito Santo is unlikely (shares can’t go lower than zero!), but other banks may feel confident enough to reveal some of their hidden skeletons in the next month.
Economic data has been a little disappointing recently; Italian GDP growth was negative, and German manufacturing seems to be slowing too. The ECB are unlikely to do anything in September, although they stand ready to act” to compensate for geopolitical risks. Come September we may see some easing action but it is unlikely to be outright QE.

Other markets

Issues Outlook
The situation in Ukraine has flared up once more, ever since the downing of Malaysian Airlines’ flight MH17. It is difficult to get much of a glimpse into the Russian mindset; Western sanctions are likely to continue to be ramped up. One problem we can see is that Mr Putin and his colleagues may not be as in control of the “rebels” on the Ukrainian border as we would like to believe – official Russian influence may be limited.
Tensions in Gaza continue as well; the summer has so far not been a peaceful one. Israel is clearly making a statement, but seems to be doing its international image some damage in the process. Sympathy seems to lie with the Palestinian side, but this may not be enough to bring the troubles to a halt in the next month. Geopolitical risk is likely to be with us into the Autumn.

Indicators

Present Situation Next Meeting Expectation Source
Bank of England 0.5% 4 September No action Click here
US Federal Reserve 0% – 0.25% 17 September No action Click here
European Central Bank 0.5% 4 September No action Click here

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

Before considering investments we recommend that you consult your adviser who can assess your personal circumstances and objectives.

For more information call 0207 760 8777 or visit www.7im.co.uk

Seven Investment Management Limited is authorised and regulated by the Financial Services Authority. Member of the London Stock Exchange.

Registered office: 125 Old Broad Street, London EC2N

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