The Global Month Ahead – An insight into April 2013

Financial News

7IM The Global Month Ahead - An insight from Seven Investment ManagementIn 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 blog?



United Kingdom

Issues Outlook
The Bank of England’s Monetary Policy Committee resisted calls to increase asset purchases in April, despite a sluggish start to the year for the UK. Mark Carney takes up his position as Governor in July. The Bank of England will probably keep any policy changes until after the arrival of Mark Carney in the Summer. Similar to Japan (below), a policy change may be more effective in terms of public perception if it comes from a new leader.
A strong indicator for the services sector in March may signal that the UK is slowly grinding its way to a sustainable recovery. The Services PMI indicator for March rose to 52.4, indicating expansion. While the Construction and Manufacturing PMI indices remain negative, the service sector is the largest portion of the UK economy (around 75%). This could mean that a technical triple dip recession is avoided; the preliminary GDP estimate for Q1, released on 25 April, could be around 0.5%.

North America

Issues Outlook
US equities have had a fantastic start to 2013, up over 10%, with both the S&P 500 and Dow Jones Industrials indices breaking into new highs. The question is whether the rally will continue in Q2 2013, as investors look for compelling economic reasons to propel the market significantly above previous highs. In the short-term, equity markets are unlikely to plummet, as the Federal Reserve continues to pump $85 billion a month into the economy. However it is possible that buying activity will be restrained until the preliminary GDP growth estimate for Q1 is
released on 26 April. At the moment, forecasts are for over 3% annualised growth, so much less than this could cause an upset.
Economic indicators came in slightly weaker than expected in March, with an increase in the number of jobless workers and a decrease in auto sales. One month of bad data is probably forgivable in the eyes of the market, and indeed may just be a result of one-off events – colder weather, tax hikes, etc. Data should pick up in April as these effects are overcome, and economic expansion resumes.

Europe ex UK

Issues Outlook
In March we suggested that no progress would be made in resolving the stalemate in Italian politics. One month later, the situation remains unchanged, with the centre-left Democrat party appealing to the Five Star Movement on the one hand, whilst unequivocally rejecting a coalition with Mr Berlusconi on the other. Not a lot of notice has been paid to the lack of government in Italy (perhaps because it compares quite favourably with periods of Mr Berlusconi’s leadership). The Italian President, Georgio Napolitano leaves office on 15 May, and it will be the responsibility of his successor to dissolve parliament should the impasse continue. Given the intransigence of Italian politicians, this pause may continue until the Summer.
Composite PMI data has been mixed in the EuroZone; while Germany and France declined to 50.9 and 41.9 respectively, the overall reading stayed flat at 46.5. This trend of the strong getting weaker and the weak getting stronger is, in essence, what the EuroZone project is ultimately aiming for. As long as Germany is still expanding, even at a lower rate, confidence will remain.

Other markets

Issues Outlook
Haruhiko Kuroda, the new governor of the Bank of Japan, (BoJ) exceeded expectations with his announcement of doubling the monetary base by 2015 – expanding the balance sheet by 1% of GDP per month in 2013. Clearly Mr Kuroda will waste no time in implementing monetary stimulus. The Japanese Yen will weaken further throughout April as the policy takes effect, and Japanese equity markets are also likely to rise as confidence in the BoJ soars.
Chinese GDP growth for the first quarter of 2013 is due in the middle of April. Growth in the final quarter of 2012 was 7.9%, and so the Q1 number will be eagerly examined, both by those predicting a China slowdown, and those claiming the setback is temporary. China is notorious for its unreliable economic data – in part due to its vast size, and in part due to a degree of massaging by public officials. The new ruling committee will not want to be seen to have had a poor first quarter in charge, but drastic improvement will look unrealistic – look for around 8% annualised.
North Korea is becoming belligerent in its external communications, particularly towards the United States and South Korea. There is already considerable political tension in the region regarding the Senkaku Islands; the addition of an erratic dictator is unlikely to be a calming influence. The US has protection obligations to South Korea, and has the military power to commit. However with 25% of US foreign owned government bonds held in South Korea, Japan and China, America has an obvious interest in maintaining stability in East Asia, rather than becoming embroiled in a war. A peaceful solution should prevail, but Kim Jong-un may not behave rationally.


Present Situation Next Meeting Expectation Source
Bank of England 0.5% 9 May No policy moves likely, perhaps an extension/expansion of Funding For Lending Scheme Click here
US Federal Reserve 0% – 0.25% 30 April & 1 May No action likely Click here
European Central Bank 0.75% 2 May No action likely Click here

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

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