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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|Chancellor of the Exchequer George Osborne is due to give his (either misnamed or mistimed) Autumn Budget Statement on Wednesday 5 December. The main issue is whether Mr Osborne’s plans of tackling the UK debt have worked – Labour have been increasing their calls for a shift in focus, from austerity to growth.||The likelihood is that Mr Osborne will have to announce an increase of his five-year target for reform – spending cuts may be extended out to 2018, although any serious increase in taxation will probably prove too contentious. An extension of the current cut in fuel duty is likely to be an easy win for the Chancellor, and there may be a few other similar proposals. In the words of a treasury official “we do have a Plan B: it’s to keep doing Plan A for longer.”|
|The Bank of England will probably remain a background story this month, taking no action on either the policy or the monetary easing side – any change will be at the fiscal level.||Following the surprise appointment of Mark Carney as the new Governor, media attention on the BoE is likely to wane – Mr Carney will not occupy the post until July next year. In the meantime, the absence of emphatically weaker economic data suggests the MPC is unlikely to ease policy until at least the new year.|
|With the Presidential Elections now over for another four years, the main issue now confronting the USA is the series of spending cuts and tax increases scheduled to occur in the new year – the fiscal cliff.||The most likely outcome is that a compromise will be reached, although with the political situation almost unchanged perhaps not until Spring next year. In the meantime, stopgap measures will be introduced to tide the economy over.|
|Financial markets fear that the full-blown implementation of austerity measures could adversely affect economic growth in the USA, knocking it back into recession.||This worry is certainly justified – but hardly unexpected. The very point of austerity is to stop debt fueled growth and focus on more sustainable economic expansion. Indeed, the US stock market could experience a volatile end to the year – but is likely to bounce back rapidly once a solution is found, possibly early in 2013.|
|No action from the Federal Reserve.||Monetary policy is unlikely to change – the Fed is already committed to buying $85 billion of Treasuries a month.|
Europe ex UK
|Economic data out of France has been disappointing recently; with consumer spending and manufacturing both declining while unemployment is rising.||France still needs to implement a firm austerity package, and this is likely to depress consumer spending even further over the next couple of months. This reluctance on the part of the French government to act could be one of the more significant wobbles for the EuroZone in the first part of 2013.|
|The credit ratings agencies continue to do a fantastic job of being months behind the curve. Moody’s cut their rating for the European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF) at the end of November, due to concerns over “the high correlation in credit risk…present among the largest financial supporters.”||Noticing that the future of the Euro will determine the fate of the EuroZone members is hardly a brilliant deduction – and it comes too late. The EuroZone is on a firmer footing than it was three years ago – and while change is not happening fast, it is still happening. Further explanations of the Greek bond buyback should see the European markets finish the year strongly.|
|Japan is holding a general election on 16 December – and the consensus is that the Liberal Democrat Party under Shinzo Abe will take power.||With Japan having had seven prime ministers in less than six years, a change at the top may not seem particularly worth commenting on. However, Mr Abe’s main electoral proposal is something very different to normal – he wants to alter the mandate of the Bank of Japan. This is the first time in a modern democracy that monetary policy been directly addressed in a politician’s campaign – could it be a sign of things to come in other developed nations?|
|China’s official Manufacturing PMI indicator showed another increase in November, up to 50.6 from October’s reading of 50.2.||Whisper it carefully, but China’s “hard landing” may have been avoided – instead we’ve seen a long steady glide down, which may now have bottomed out.|
|Present Situation||Next Meeting||Expectation||Source|
|Bank of England||0.5%||5 & 6 November||No action expected||Click here|
|US Federal Reserve||0% – 0.25%||11 & 12 December||No action as election fallout is assessed||Click here|
|European Central Bank||0.75%||6 December||No action likely||Click here|
The views expressed in this document are for information only and do not constitute investment advice.
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