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 has his first month as Bank of England Governor; a change in monetary policy is unlikely this month.||Immediate action from Mark Carney would be a little hasty (after only 4 days in the job); although recent media coverage has been somewhat expectant in tone. In addition, there is the consideration that the Monetary Policy Committee is just that – a committee – and Mr Carney is only one voice with one vote. The meeting minutes will be eagerly scoured when released towards the end of July.|
|The possibility of clearer guidance on the future direction and level of interest rates by the Bank of England is under discussion – and will be revealed by the middle of August.||With global interest rates already very low, communication is becoming a useful monetary policy tool for many central bankers. We may well see a more explicit link between economic strength and monetary policy here in the UK – perhaps linking the low interest rate to the rate of unemployment, similar to the US.|
|Data releases in the United States are being followed more and more closely, in tandem with scrutiny of the latest comments from members of the Federal Reserve.||The June nonfarm payrolls number is the first indicator to watch out for, due on 5 July. Consensus is for a gain of around 165,000, however, as with last month, no one is quite sure what to watch out for. It remains unclear whether markets will look at the underlying strength of the US economy, or instead focus on the provision of liquidity due to Quantitative Easing.|
|Mortgage rates in the US have risen by one percent since the start of May; concerns are growing that the fledgling recovery in the housing market could be derailed.||There is, of course, a concern that increasing mortgage rates reduces the affordability of houses for individuals. However, given that rates have been near all-time lows, the recent spike is unlikely to have cut the size of the potential buyers market by much. Indeed, it may even prompt people to purchase more quickly, fearing further rises in future – “Get ‘em while they’re hot!”.|
Europe ex UK
|The resignation of a number of ministers leaves the political situation in Portugal delicately balanced. A full withdrawal from the coalition by the CDS-PP party would leave the Social Democrats without a majority and facing a very difficult early election.||The splintering of Portugal’s ruling centre-right coalition could prompt another summer dominated by worries over the future of the Eurozone; the potential for political turmoil is the greatest it has been for some time. However, Mario Draghi’s financial consolidations and support mechanisms leave the single currency block far more prepared than previously to withstand shocks – a full return to crisis mode does not seem probable.|
|The most important near term hurdle for the Eurozone may well be the German election in October. Further disruptions in Eurozone peripheral nations could alter the domestic political balance.||Although still three months away, the elections in Germany will start casting their shadow over current events. We will start to see an increased focus on whether Angela Merkel will still be in power, and if so, through what kind of coalition and at what cost? – We will be monitoring carefully.|
|Chinese interbank lending rates spiked last month, raising fears that in addition to slowing GDP growth, China’s banking system could also be facing a “cash crunch”.||The Chinese central bank recently stated that it will ensure there is enough liquidity in the economy to allow the banking system to function smoothly. In addition, the Chinese censorship agency has told media outlets to stop using the phrase “cash crunch” and to be more positive about the economy and liquidity in general – clearly Chinese leaders are worried about popular opinion. This nervousness is likely to continue over the summer.|
|The Japanese Upper House Election is expected to be held this month, and is widely predicted to be a landslide victory for Prime Minister Shinzo Abe’s Liberal Democrat Party.||Mr Abe’s party currently has approval ratings close to all-time highs, whilst his main opponents, the centre-left Democratic Party of Japan, are struggling to find candidates to stand in the election. We expect Mr Abe to win the Upper House easily – he will then have to be judged on the implementation of his reforms, rather than just the promise of them.|
|Present Situation||Next Meeting||Expectation||Source|
|Bank of England||0.5%||4 July||No action at Mark Carney’s first meeting||Click here|
|US Federal Reserve||0% – 0.25%||31 July||No action expected||Click here|
|European Central Bank||0.50%||4 July||No action expected||Click here|
The views expressed in this document are for information only and do not constitute investment advice.
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