The Global Month Ahead – An insight into March 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
The minutes of the February Monetary Policy Committee meeting were fairly significant. Of the 9 members, 3 voted for further increases in the Asset Purchase programme, including Governor Mervyn King. Some form of policy action in March would not be a total surprise. Much attention has been focussed on the soon-to-be Governor Mark Carney, yet it is also worthwhile remembering that Governor King is still in office, and his opinions carry considerable weight. There is more than an outside chance that there could be some form of monetary stimulus (around £25 billion of asset purchases) announced at the March meeting.
The Chancellor George Osborne’s 2013 Budget will be on 20 March. It is likely that he will have to admit that total government borrowing will go up this year. According to the Office for Budget Responsibility, lower tax receipts and higher spending meant that borrowing will be almost £7bn higher than the previous forecast. The Chancellor will also hope to avoid repeating the calamitous U-turns from last year’s budget.
Sterling has fallen 6% since the start of the year, easing financial conditions – the decline will continue. Sterling will continue to depreciate in March, but perhaps more slowly against the Euro, following political worries in Italy.

North America

Issues Outlook
The GDP numbers for Q4 2012 were revised up to 0.1% growth from a 0.1% contraction. The US economy barely grew in the last three months of 2012 as usually volatile components fell sharply, however with stronger consumer spending and the latest data on Case-Shiller house prices and new home sales showed, the recovery is gathering momentum. Consensus forecasts show the economy growing 1.8%, 2% and 2.5% over the next three quarters, respectively.
The US Federal Reserve released the minutes of their January meeting which highlighted concerns of the ‘potential costs and risks’ of Quantitative Easing (QE). These concerns rattled global equity markets last month. Part of the problem is that whenever the Fed board doesn’t talk about further easing, investors naturally assume the message is one of tightening. However, Fed chairman Ben Bernanke has reiterated his position in a select committee hearing saying “we do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more rapid job creation”.

Europe ex UK

Issues Outlook
Since last summer, the situation for the EuroZone has been relatively benign – poor economic data was counterbalanced with political progress and vocal central bank support. The Italian election may be a slight setback to progress as we enter the
This month will see politics dominate the EuroZone once more, as a hung parliament in Italy will rule out any significant progress for the next few months. However, the upside is that it also rules out any short-term backsliding on prior commitments – if the worst that happens to Italy is an ongoing implementation of Mario Monti’s reforms, this could be a storm in a teacup.
The European Central Bank (ECB) continues to project an aura of calm – this will continue in March, as Mario Draghi allows some normalisation of markets to occur. No action will be taken to halt the appreciation of the Euro, unless economic data is drastically below par. The relative strength of the Euro as a currency (unthinkable at this time last year!) has been cleverly dealt with by the ECB, who will take no action until there is significant evidence that Euro strength is impacting growth and inflation. This leaves them free to decide when (if ever) the evidence is ‘significant’ enough. Policy will remain unchanged in March.

Other markets

Issues Outlook
Japan’s Prime Minister has nominated the current president of the Asian Development Bank (ADB), Haruhiko Kuroda to become governor of the Bank of Japan (BoJ). Mr Kuroda was the Vice Minister for International Affairs at the Ministry of Finance in 1999 and so was one of the key drivers of the foreign exchange intervention policy to hold down the Yen. In addition to this he has also been a vocal critic of the conservative BoJ’s weak attempts to fight deflation and has called for more aggressive QE. The Japanese Diet will vote on the nominations on 15 March whilst the first BoJ meeting will be on 3 April.
The Polish economy grew by 1.1% in Q4 2012 suggesting there may be some green shoots of recovery occurring in emerging European economies. Given how well Poland has ridden the post-2007 global crisis, the growth number may sound low however it was higher than the consensus of 0.9%. Also, business surveys are showing more positive sentiment and Germany, Poland’s largest export market, is starting to pick up.


Present Situation Next Meeting Expectation Source
Bank of England 0.5% 7 March No action expected Click here
US Federal Reserve 0% – 0.25% 19 & 20 March No action likely Click here
European Central Bank 0.75% 7 March 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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