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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|The first estimate of UK Q4 GDP growth was a decline of 0.3%. This contraction (and the mention of the phrase “triple-dip”) has prompted renewed criticisms of Chancellor George Osborne’s austerity measures.||Fiscal and monetary policies are unlikely to change significantly over the next month or so. The Bank of England still shows a preference for observation rather than further intervention, and the Chancellor has enough self-belief to stand by his “Plan A”.|
|The Funding for Lending Scheme (FLS)- part of the BoE’s extraordinary measures taken to spur growth – may be starting to bear fruit, as January figures indicated a pick-up in mortgage lending, combined with a decline in mortgage interest rates to an average of 3.65%.||As long as UK government bond yields remain low, the FLS will be a supportive influence for UK homebuyers (although it has kept interest rates for savers depressed) – as the government transfers some of the benefit of cheap borrowing to the banking sector, and hence to individuals. However the important numbers to follow will be those of the small business sector – where loans are liable to remain difficult to obtain for some time.|
|The US economy contracted by 0.1% in Q4 2012, following a 3.1% expansion in Q3 2012.||US economic growth has been positive for three years, and this blip is likely to be temporary – largely influenced by budget debates towards the end of last year. Positive personal consumption and business investment suggest that the economy is still set on the path to recovery and we will likely see stronger data in February.|
|The US residential housing market is continuing the recovery that began in 2012, as pent-up demand is released into a market that has low levels of new housing available.||The US property market will continue to show positive signs. Potential homeowners are now entering the market on the back of increases in earnings and a sense of confidence. This increase in the value of homes should trickle through into more disposable income – boosting a consumer recovery over the next year or so.|
Europe ex UK
|Germany and France diverged hugely in January’s composite Purchasing Managers’ Index (PMI) numbers, with Germany Recording 53.6 while the French reading fell to 42.7, a 3 year low.||The stark disparity between Germany and France may well correct slightly in February, as the Eurozone becomes more united. However it is still going to produce mixed signals when it comes to data, with clearly defined areas of strength and weakness.|
|The Euro has appreciated by nearly 5% since September 2012.||Further gains would impact peripheral nations’ ability to export and the ECB may be forced to act sooner than it would prefer in order to prevent this – perhaps by H2 2013.|
|The European Central Bank holds its meeting on 7 February – no change in monetary policy is expected.||The gradual stabilisation that Mario Draghi is aiming for appears to be occurring – hence there should be no need for a shift in the ECB’s stance this month.|
|The Italian general election is on 24 February.||Political instability is common in Italy, but the outcome of this election is particularly indistinct. A coalition arrangement seems marginally more likely, with Mr Monti still involved in the process of government.|
|The Japanese Yen has weakened by over 6% against the Dollar in the month since Shinzo Abe became Prime Minister, and the Nikkei stock index has risen by 8%.||Mr Abe will continue to follow through on his pre-election promises to revamp fiscal and monetary policy and introduce an inflation target for the Bank of Japan. In the near term, the debt problem will be ignored, in favour of revitalising the Japanese economy after two decades of stagnation – and the Japanese equity market should continue to rise.|
|The Korean Peninsula looks troubling, as rival satellite launches have been made by both North and South Korea in the past month.||An escalation of tensions between the two Koreas is worrying – within the next couple of months, North Korea will probably stage some manner of rival display of power, in an attempt to trump the South Koreans.|
|Present Situation||Next Meeting||Expectation||Source|
|Bank of England||0.5%||7 February||No action expected||Click here|
|US Federal Reserve||0% – 0.25%||19 & 20 March||No action likely||Click here|
|European Central Bank||0.75%||7 February||No action likely||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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