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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|Mark Carney’s job as Governor of the Bank of England keeps becoming more challenging. While inflation is now at its target level (for the first time since 2009), rapidly improving economic data continues to test Mr Carney’s commitment to low interest rates.||Unemployment data keeps surpassing expectations – in a good way – with the rate now at 7.1%, just above the 7% trigger level Mr Carney mentioned in the summer. In the next few months, we are likely to see this 7% threshold moved lower, rather than a rise in rates – why take action when you can talk instead?|
|Scottish independence is becoming a hot topic in the UK.||As the referendum (on the 18 September) draws nearer, people are beginning to look more critically at the mechanics underlying a split – instead of the simple appeal to emotion and national pride. Once the obstacles to be navigated are outlined, there could be a swing of votes away from independence, as the Scottish people realise the risks involved.|
|The Federal Reserve, after six months of prevarication, has embarked on its tapering course with gusto – with another $10 billion reduction in purchases to come in February.||The first round of tapering in December left global equity markets unchanged, and anticipation of January’s has prompted a decline. Fortunately, economic data is still positive; investors should come to view the removal of stimulus as good news in the long term. The equity markets in the US and other linked countries should hopefully have a better second month of the year.|
|Consumer spending in the US is at its highest for three years, despite no meaningful rise in incomes.||Although this seems contradictory, savings levels in the USA have been above average since the Global Financial Crisis. As saving declines, households spend more – and there is still plenty of room to go. The US consumer drives the world economy – expect more positive data.|
Europe ex UK
|Core inflation in Europe is still declining, with January’s figure of 0.7% again lower than expectations at 0.9%.||A number of the factors dragging European inflation down will probably still be in evidence in February’s inflation reading. A large amount of the decline is due to energy prices falling compared to this time last year – and with Brent Crude still currently around $105 (against $110 in February 2013), inflation in Europe could hit 0.6%.|
|European indicators to keep the positive momentum going.||entiment in the Eurozone is improving – manufacturing indicators were nearly all positive, even the recently troublesome France beating expectations and approaching the level which signals expansion. Despite poor market performance, look for more evidence that the first month of 2014 has been one of the Eurozone’s strongest in a long while.|
|So far, the beginning of 2014 has not been encouraging for many Emerging Market equity markets. Interest rate hikes in Turkey, Brazil and South Africa have spooked markets.||Investors are still reacting to problems in single countries by selling worldwide equity indices – which exaggerates the breadth of the problems. Hopefully, some sense will return this month as fundamental economic data is taken into account; Emerging Markets bare still set to grow at rates far above developed markets.|
|Japan is experiencing some market turbulence as a result of the above issues.||The 10% decline in the Nikkei seems a little unfair, given that Japan is undergoing its most significant period of (largely successful) economic change in two decades. Consumer spending, inflation and GDP growth should all continue to increase over the next month.|
|Present Situation||Next Meeting||Expectation||Source|
|Bank of England||0.5%||6 February||No change in rate or asset purchases||Click here|
|US Federal Reserve||0% – 0.25%||19 March||$10 billion a month in “tapering” to continue||Click here|
|European Central Bank||0.25%||6 February||No change, but dovish comments from Mr Draghi to keep markets on side||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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