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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|Much like for comedians, for central bankers, timing is everything. Mark Carney appears to have taken the reins at the Bank of England just as economic growth begins to take hold.||Mr Carney‘s job is still far from easy; confidence is still fragile in the UK, and recoveries are built around sentiment. Nevertheless, if the data continue to improve in January, Mr Carney may become a little less forceful in his defence of low interest rates – although it should be emphasised that any rise is still a long way off.|
|Last month, we said that expectations should now begin to catch up to reality in the UK…||…then unemployment came in at 7.4% rather than 7.6%, so perhaps the good news will be able to keep on coming after all.|
|Inflation is likely to stay contained in the UK, around the 2.5% mark.||Inflation is likely to stay low, although is unlikely to duck under the 2% level once Winter fuel hikes have been included in the next set of figures.|
|Along with the majority of investors, we were incorrect in our view that tapering would be delayed until the end of Q1 2014.||With tapering set to begin in January, the biggest source of uncertainty for financial markets has disappeared – since the announcement the S&P 500 has hit new all-time highs. With action having been taken, Janet Yellen should be able to have a relatively quiet first few months in charge – US policy will remain unchanged for the first part of 2014.|
|What was the Fed thinking?||We won’t have to wait long to find out the Fed’s thinking on tapering. It will be releasing its minutes early in the month and is expected to say that its commitment to low interest rates will be enough to offset any effects of reduced bond buying.|
Europe ex UK
|The New Year sees the publication of Manufacturing PMI survey data across the Eurozone.||The manufacturing sentiment in Europe has been on a very strong trend in 2013 – January’s numbers should show further improvement. However, France has been lagging for some time now, and may continue to diverge.|
|Eurozone inflation remains subdued.||Eurozone inflation as measured by the Consumer Price Index remains below 1%. There is reason to believe that the ECB may be forced to act if the inflation rate continues to remain low, as this kind of environment can be damaging to the debt sustainability of the Eurozone periphery. Negative interest rates and further asset purchases have been mooted as possibilities.|
|Japan’s economy reacts to ‘Abenomics’.||The inflation rate in Japan surprised on the upside last month by exceeding expectations by 0.4% which is very significant for an economy which has spent the last two decades mired in deflation. Most of this rise has been down to a fall in the Yen and with the Bank of Japan committing to a 2% target, their asset purchase programme looks set to continue.|
|Turkey’s top brass mired in corruption charges.||Turkey’s economy has been faced with some stiff economic headwinds recently; in particular the Fed’s decision to taper has seen investors head for the exit, affecting its stock markets, bonds and currency. Now the country faces further headwinds in the shape of a large political scandal which could linger on for a long time.|
|Present Situation||Next Meeting||Expectation||Source|
|Bank of England||0.5%||9 January||No change in rate or asset purchases||Click here|
|US Federal Reserve||0% – 0.25%||29 January||Having surprised with a taper in December, the Fed will let things settle – no action||Click here|
|European Central Bank||0.25%||9 January||Given the rate cut in November, a further cut is unlikely||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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