The Global Month Ahead – An insight into January 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
Q3 GDP growth was revised down to 0.9% from 1% year-on-year, but small moves such as this will not impact the policy stance of the Monetary Policy Committee. The Bank of England has remained in wait-and-see-mode as predicted last month – this is likely to continue as long as economic data remains supportive overall. This is borne out by the minutes of the December MPC, showing that only one of the nine members voted for further easing.
The preliminary fourth quarter GDP growth figure is released on 25 January 2013. Mixed indicators are likely to continue; wages have remained flat, but inflation is declining, and interest rates on debt are low – increasing disposable income. The GDP growth number is unlikely to be as strong as Q3 2012, as the effect of the Olympics will largely have faded – perhaps around 0.5%. However, this would rely on consumption increasing over the festive period, mitigating a decline elsewhere, preventing a return to negative territory.

North America

Issues Outlook
The US congress has approved a piece of legislation to avert falling over the so-called ‘fiscal cliff’. The deal included tax increases for the wealthiest Americans and a two month delay in spending cuts that were due to take place on 1 January 2013. Despite the deal agreed in the late hours of New Years Eve, this new piece of legislation has merely set up an even larger showdown in a couple of months. The Republicans are unlikely to show more bipartisanship and will demand steeper spending cuts while the Democrats will likely demand more equitable spending cuts to tax increase ratios. This will likely weigh down on confidence as fresh debt talks resume in the coming weeks.
On Boxing Day, Tim Geithner, the US Treasury secretary announced that the US will have to begin using “extraordinary measures” as soon as possible in order to avoid breaching its borrowing limit on 31 December 2012. A separate, although not unrelated, issue to the Fiscal Cliff is the debt ceiling – the self-imposed limit that Congress permits the US government to borrow in order to fund its obligations. Whilst both Republicans and Democrats accept that the debt ceiling must be increased (in the short-term at least), both have the ability to use their votes as leverage in the Fiscal Cliff negotiations.

Europe ex UK

Issues Outlook
The Ifo business climate index for Germany rose for the second consecutive month in December – reaching 102.4, its highest level since June. Recently although optimism about the long-term future of the Euro has grown, forecasts over the short-term state of the German economy have been more downbeat. However the positive outlook for the business climate may signal that there is less reason to be worried – recent poor data may be a blip, rather than the beginning of a protracted downturn.
In Italy, the political situation remains as murky as ever. Current PM Mario Monti was invited to his position without a general election, in order to help Italy through its debt crisis, just over a year ago. The general election is on 24 February 2013. Having resigned on 21 December, Mr Monti has announced his decision to stand in the general election as the head of a centrist alliance. However there is no clear guide yet as to the structure of this alliance, and with Silvio Berlusconi stirring up trouble once more, the political situation in Italy is likely to be fragile in Q1 2013.

Other markets

Issues Outlook
China has ended the year on a far more positive note than it started – with the HSBC PMI manufacturing index rising to a 19-month high in December. Manufacturing conditions are only likely to improve in the first quarter of 2013 as government spending on infrastructure projects continues. Domestic demand is likely to keep increasing, potentially making up the slack should exports fall – or providing an extra growth kick if conditions elsewhere improve.
Industrial Production in Japan was weaker than expected falling 1.7% between October and November. Inflation also fell 0.1% in November. Following the election victory of the LDP and new prime minister Shinzo Abe who pledged to put economic growth at the forefront of government policy, the series of weak data bolster the case for fiscal stimulus, including large-scale public spending and for the Bank of Japan to introduce a 2% inflation target in its January meeting.


Present Situation Next Meeting Expectation Source
Bank of England 0.5% 9 & 10 January No action expected Click here
US Federal Reserve 0% – 0.25% 29 & 30 January No action likely Click here
European Central Bank 0.75% 10 January 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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