The Global Month Ahead – An insight into July 2014

Financial News

Guest Blog Seven Investment Management 150pxIn 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 article?



United Kingdom

Issues Outlook
The Office for National Statistics is conducting an extensive review into the methodology behind GDP growth calculation. The review is due to be published on 30th September. The review is likely to show that the recession in 2009 was weaker than expected, and as a consequence, UK output is already above pre-crisis levels. However the real data point of concern will be the preliminary Q2 GDP growth estimate released on 25th July. This number is expected to indicate an annualised expansion of approximately 3%.
The Bank of England is giving out some mixed messages at the moment about interest rates. The Monetary Policy Committee has been keeping investors on their toes – some emphasising the strength of the economy, others emphasising the slack that still remains in the labour market. With the Inflation Report due out in August, monetary policy is likely to remain unchanged until then.

North America

Issues Outlook
First estimates of US second quarter growth are due at the very end of July. With Q1 GDP growth falling from 0% to -1% to -3% through various revisions, investors are desperate for the Q2 data to rebound strongly. Signs are relatively promising – payrolls data has been strong since January, suggesting that the slowdown may just have been weather related. Even so, for an economy to be knocked so badly by poor weather is an indication of the fragility of the recovery.
At the end of March, we suggested that an index level of 2000 on the S&P 500 was a possibility by the end of Q2. Sadly, we are still 15 points (0.8%) away from the 2000 level, but with sentiment still positive, July could well be the month in which this psychological barrier is broken. The Dow Jones Industrial Average Index has breached 17,000 in the last week, so clearly the momentum is there.

Europe ex UK

Issues Outlook
Mario Draghi this week announced that the ECB was going to change protocol in two significant ways. First, from January 2015 the ECB will no longer meet monthly (like the BoE) but instead will convene every six weeks to discuss monetary policy (like the Federal Reserve). Secondly, the ECB will begin publishing minutes of its meetings. The European Central Bank isn’t particularly nimble – it has the interests of eighteen separate nations to consider before it makes any decision. The timescale change suggests that the ECB may be aligning itself to react to US monetary policy in a more timely fashion. The release of the minutes will most likely be another form of forward guidance – keeping investors informed only to the level that Mr Draghi wishes.
We do not get a first estimate of Eurozone GDP until the start of August. It would be a real surprise if the August GDP expansion figure came in at much above 1%, and similarly a figure around 0% would also be a shock. PMI indicators in the month are likely to remain above 50, but not materially so.

Other markets

Issues Outlook
After a month and a half as the new leader of India, Narendra Modi faces his first real challenge this month. The past six weeks have been something akin to a victory parade for Mr Modi. On July 10th however, Mr Modi has to produce a viable budget to stimulate economic growth. What will satisfy investors? It’s hard to be precise, as there are so many things that could be done! Cutting taxes on items such as automobiles is one key area where change is likely.
Macau has become the world’s fourth richest territory, above Switzerland. It may not stop there. Macau is where the Chinese go to gamble. Last year it recorded gaming revenues over seven times that of Las Vegas. As the only place in China where gambling is legal, the story is unlikely to be over for Macau’s growth prospects, as transport links improve.


Present Situation Next Meeting Expectation Source
Bank of England 0.5% 10 July No action on interest rates Click here
US Federal Reserve 0% – 0.25% 30 July No action on interest rates or tapering Click here
European Central Bank 0.5% 7 August No action Click here

Seven Investment ManagementThe views expressed in this document are for information only and do not constitute investment advice.

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