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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|“Central Bank Governor” never used to be a job that had high visibility, front page rock star status. However Mark Carney has been making headlines since he took over in the Summer. In the past month, he has offered an olive branch to the City, launched a full review of the Bank of England and started to embrace Twitter.||Commentary on interest rates and asset purchases has dwindled since last month, so at the forthcoming meeting of the Monetary Policy Committee we believe that a forward guidance statement of some sort will be issued. No changes will be made in monetary policy, but a commitment to low policy rates is likely to be restated.|
|Government stimulus schemes are finally feeding through to the real economy – bank lending should continue increasing throughout November.||The Help-to-Buy scheme has been giving impetus to the residential property market for some time now. However, the real driver of growth will come from smaller companies – and indications are that bank lending to these is finally starting to increase too. Small business loans should increase through the end of 2013.|
|Last month, we stated that the US politicians would manage to resolve the debt ceiling/budget negotiations, “but not without some histrionics and a little time”.||The Republicans and Democrats delivered in fine form, managing to make brinkmanship both boring and terrifying. However with the debt ceiling only raised until February, the baffling performance that is American politics has only been paused – the show may well resume towards the end of the year.|
|The Federal Reserve indicated in its October statement that despite the three-week shutdown of the US federal government, the US economy is still expanding at a rate deemed reasonable.||The US central bank has left the way open for a reduction of asset purchases in the next meeting in December. The data would have to be incontrovertibly positive over the next six weeks, which seems unlikely in our view. Given the potential for political slip-ups in the New Year (mentioned above) plus the arrival of the new Fed Chair Janet Yellen, the next few months should be quite quiet for the Federal Reserve.|
Europe ex UK
|European economic data should continue to improve. Positive shifts will be most evident in the peripheral countries, where the base level to grow from has been much reduced since the sovereign debt crisis.||Since October business surveys have tended to surprise in the “weak” countries such as France and Italy, and disappoint, particularly in Germany. These mixed indicators could reflect a rebalance between Eurozone economies – exactly what is needed for sustainable growth throughout the currency block.|
|There is a slight cloud on the horizon, in as much as the Eurozone could now find itself a victim of its own recovery – the Euro has been strengthening a lot recently.||As stability has returned to Europe, investors have been returning to European stocks. This steady inflow of cash, combined with quantitative easing of other central banks (the US Federal Reserve in particular), has led to the appreciation of the Euro. A sustained high exchange rate could stifle any nascent recovery, so although the ECB refuses to target exchange rates explicitly, Mario Draghi may lean towards some looser policy measure.|
|The Bank of Japan continues to reiterate its commitment to purchasing $71bn of bonds until the end of 2014. So far, this emphasis has kept the markets quiet since April.||Prime Minister Abe is aiming to stoke inflation and growth in order to tackle the entrenched deflation in Japanese society. As he was elected with a mandate for structural change, Abe’s policies should be relatively unchallenged. Should confidence wobble over the next month, the BoJ could well announce further easing.|
|Emerging Markets have been somewhat unloved by investors for the past two years; money has flowed back in Developed Markets with lower but more stable growth prospects.||Since the summer, various EM equity markets have bounced sharply with the broad index up 18%. Investment appetite is returning; positive sentiment in Developed Market investors is increasing risk appetite and cash is beginning to trickle back to India, China et al. This should continue over the next month.|
|Present Situation||Next Meeting||Expectation||Source|
|Bank of England||0.5%||7 November||No action expected||Click here|
|US Federal Reserve||0% – 0.25%||18 December||No action expected||Click here|
|European Central Bank||0.50%||7 November||No action expected||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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