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.
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|As we approach the end of the year, optimism is returning to the UK economy.||Surveys of manufacturing, construction and services activity have remained in positive territory, stabilising since the summer wobble. Nevertheless, the Bank of England has recently sounded more cautious about the speed of possible interest rate hikes. It may not be until Summer 2015 that the base rate begins to move upwards.|
|Politics continue to dominate the news – something that we should be prepared to see for the next six months.||The approaching election should continue to throw the somewhat unheeded conflicts in British politics into sharp relief – whether it be the Labour party leadership, Conservative party fragmentation or the transformation of the general public’s political apathy into genuine dissatisfaction with Westminster. The 2015 election is certainly not going to be boring.|
|What a difference a month makes. At the start of October, the S&P 500 was falling away from the 2000 index level, getting down as far as 1860…||Since the start of November though, the S&P 500 has remained robustly above 2000 – helped by strong earnings data. Should the momentum be sustained, and the index close the year above this important psychological level, this would be an important catalyst for a strong 2015 – although it may create some volatility around the start of the year as nervous investors take profits.|
|Federal Reserve meetings are going to become quite boring for the next few months.||Another first quarter like the weather-hit one of 2014 could be a speed-bump for the US recovery – no one expects Fed Chair Janet Yellen to begin raising interest rates before Spring 2015, when any damage can be properly assessed, and policy adjusted accordingly.|
Europe ex UK
|The ECB meeting in November announced no new monetary stimulus measures, but instead was used by ECB President Mario Draghi to emphasise the commitment and the ability to take policy further if necessary.||The current balance sheet expansion programme (through the purchase of asset backed securities and covered bonds) is yet to really ramp up – until it begins in earnest, we are unlikely to see extra stimulus from the ECB. GDP growth numbers for Q3 will be around zero, as expected.|
|French President Francois Hollande is considered unfavourably by 67% of his electorate.||In these circumstances, his pledge not to run for re-election unless unemployment declines seems a little irrelevant. Mr Hollande is also under pressure from other European leaders to implement structural reforms – there is only so long that France can get away with telling the likes of Spain and Italy to “do as I say, not as I do”.|
|At the end of October, the Bank of Japan announced an increase of its expansion of the monetary base by $250 billion per year. In addition, the government pension fund declared an increase in its target allocation to equities.||These events occurred almost simultaneously – and perhaps more impressively, given the level of central bank scrutiny, came as a surprise. This was a convincing demonstration that Prime Minister Shinzo Abe continues to have support for his attempt to reinflate the Japanese economy – and may give him enough leeway to continue to increase the consumption tax in April 2015.|
|Crude oil is now trading at just above $80 per barrel, a decline of nearly 30% compared to July levels.||This decline should feed through fairly directly to the global consumer – even in the US, half of households spend 20% of their income on fuel, and the levels are much higher in Emerging Market economies. Less money spent on fuel should lead to more consumption across the world.|
|Present Situation||Next Meeting||Expectation||Source|
|Bank of England||0.5%||4 December||No action||Click here|
|US Federal Reserve||0% – 0.25%||16 December||No action||Click here|
|European Central Bank||0.5%||4 December||No action||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.
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