The Global Month Ahead – An insight into November 2012

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 Bank of England’s Monetary Policy Committee will have its regular monthly meeting, and decide whether to alter either the Bank Rate or engage in further asset purchases. For the past few months the MPC has been a quiet affair, as feed through of July’s quantitative easing has been monitored. Many forecasters expected November to bring another round of money printing by the BoE and yet the economic data has surprised – none more so than the Q3 GDP growth at +1%. The Bank will be cautious of interfering too hastily, and hence there will be no change in Bank Rate or the Asset Purchase Program.
Governor Mervyn King made a speech at the end of October that hints at the potential for a marked shift in his attitude towards looser monetary policy; “limits are inherent in any form of monetary easing, not only asset purchases… [there are] limits to its ability to stimulate private sector spending.” With Britain now out of a double-dip recession, the hope is that some growth momentum can be maintained into 2013. However, if economic expansion slows again (no Olympics this time!), the MPC may find itself in a difficult situation where it needs to act, but has no effective means of doing so.

North America

Issues Outlook
Hurricane Sandy hit the east coast of the USA late in October, after sweeping through the Caribbean last week. The full extent of the damages is difficult to assess, but will become more apparent over the next few weeks. Beware of the “broken window fallacy” that often follows catastrophes – GDP will receive a boost from rebuilding and repairing the damage, but this short-term increase will be borrowed from long-term true economic growth.
Another intangible effect of the hurricane will be on the US election – it is impossible to calculate precisely how the American public will factor the candidates’ reactions into the voting process. The US election is too close to call. However people are swayed by more recent events, and the storm may prove to be Mitt Romney’s undoing. Barack Obama has the opportunity to appear Presidential (in a way George W Bush singularly failed to do following Hurricane Katrina), and any of the usual pre-election bad-mouthing by the Republicans is likely to be seen as in poor taste.
The Federal Reserve has no meeting in November. With no meeting in November, politics rather than policy will be taking centre stage.

Europe ex UK

Issues Outlook
The Greek parliament has produced projections for Greek debt next year to reach 189% of GDP and continue climbing into 2014 – worse predictions than feared by its bailout providers, the ECB, IMF and European Commission. For nearly two years, Eurozone officials have been kicking the can of Greek bailouts down the road, hoping that given time, the situation will improve. This has consistently failed to be the case, but the Eurozone leaders are past the point of no return – despite German bluster, an accord will be reached by mid-November, and Greece will continue to be part of the Eurozone.
Even outside of Greece, good economic news is likely to be thin on the ground – Germany and France are seeing a slowdown in activity as their export markets are contracting, unemployment is rising across the continent and corporate lending is slowing – especially in Italy. The Eurozone is in a very different position to a year ago – almost across the board individual countries are in worse shape economically, yet a cohesive future for the currency union seems more certain. Markets are now giving Eurozone nations the benefit of doubt: positive news will be trumpeted, and minor negative news is likely to be ignored (for the time being at least).

Other markets

Issues Outlook
Chinese manufacturing expanded again in October, following four months of contraction. Over the next few months, infrastructure projects approved in the first half of the year are going to begin, and it would not be a surprise to see other indicators perk up. The once-in-a-decade change of leadership in China will take place in the next few weeks. Although numbers never lie, the likelihood is that Chinese data in the near future will perhaps be better than one might expect, in order to give the new guard time to settle in.
Australia’s housing market declined for the third month in succession, with prices down 3.7%, despite central bank intervention. Australia seems to finally be participating in the bad times as well as the good – and a housing bubble on top of a commodity bubble could be very painful when it bursts. Clearly the Reserve Bank of Australia is aware of the dangers, but it may be that it has acted too late to do anything more than cushion the fall.


Present Situation Next Meeting Expectation Source
Bank of England 0.5% 7 & 8 November No action following Governor King’s statements (discussed above) Click here
US Federal Reserve 0% – 0.25% 11 & 12 December No action as election fallout is assessed Click here
European Central Bank 1.5% 8 November 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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