In 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 |
| With first quarter GDP growth at six year highs, Q2 2014 should continue the trend of positive data. | At 3.1% year-on-year UK GDP, growth is encouraging, and output is now just 0.6% below its 2008 all-time high. Q1’s reading suggested that business investment is beginning to show signs of life – we expect related surveys to show equivalent strength in May; PMI Services and Manufacturing could increase once more. |
| European Parliamentary elections are at the end of May. | Elections for Members of the European Parliament tend to be ignored by most of the British public, except those with a point to prove on their European views. These “protest” votes could lead to UKIP continuing to gather popular momentum for the time being. |
North America
| Issues | Outlook |
| Last month, we said that it would take “a genuinely dismal run of economic data” to disrupt the US equity market. | We had no idea what would constitute bad data, but it appears that GDP growth in Q1 2014 of 0.1% was still not awful enough to disrupt markets significantly. If data fails to pick up in May, investors may begin to worry about the sustainability of the US recovery. However we remain of the opinion that any slowdown is temporary – the Federal Reserve policymakers clearly feel the same way. |
| While economic data is erratic, company results for Q1 2014 gives cause for optimism. | Earnings from large cap energy companies such as Exxon and Conoco Phillips have surprised to the upside; although as usual, management guidance has been drifting slightly lower over the first three months of the year. The confidence displayed by companies suggests that this earnings season could turn out to be a pleasant surprise for markets. |
Europe ex UK
| Issues | Outlook |
| We are in the same position as last month regarding central bank policy in Europe. | Data continues to be erratic – which of course is the problem when constructing one monetary policy stance for a disparate group of nations, all of whom have independent economic and fiscal traits. However, on balance we feel that Eurozone data is likely to be more positive than negative in the next month (car sales should keep picking up, for one). Mr Draghi is unlikely to act, but he has been known to surprise the markets – and if he does take action, it is likely to be sizeable. |
| Inflation probably won’t be troubling the Eurozone in the near future. | Price increases are a long way off, and with unemployment at 11.9% (Spain still has 24.9% unemployment!), wage rises are even further away. Expect below 1% inflation in May. |
Other markets
| Issues | Outlook |
| In Japan, the first signs of the effects of the sales tax hike aren’t promising – the Japanese manufacturing PMI survey has contracted for the first time in 14 months –since Prime Minister Abe began trying to revitalise the economy. | The immediate impact of the sales tax has been roughly in line with expectations – consumers stock up on goods before the tax hike, and so manufacturers cut their output once the tax increase takes effect. The key point for Japan is whether consumption (and confidence) will be more than temporarily depressed – however, if this is the case, we believe the Bank of Japan will step in with a further round of Quantitative Easing, although this is not likely before the end of the summer. |
Indicators
| Present Situation | Next Meeting | Expectation | Source | |
| Bank of England | 0.5% | 8 May | No change in interest rates | Click here |
| US Federal Reserve | 0% – 0.25% | 18 June | No action on interest rates or tapering | Click here |
| European Central Bank | 0.5% | 8 May | An outside change of some monetary easing | Click here |
The 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
