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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|Throughout September, the Bank of England Monetary Policy Committee has been presenting a united front. Speeches and lectures across the country have been used to hammer the point on loose monetary policy.||The first message from Mark Carney and his fellow committee members is that interest rates will remain low, despite market reactions. The second is that further printing of money is unlikely to be necessary at present, due to the burgeoning economic recovery. As such, in October, we expect no change in either the asset purchase scheme or the Bank Rate.|
|The “green shoots” of the past few years seem to finally be taking root and showing signs of flowering.||GDP quarter on quarter growth was 0.7% for Q2 2013, and a similar number is likely for the last part of the year. Forward-looking surveys suggest that manufacturing, service and construction data should be positive in October. One potential stumbling block could be a sustained strength in the value of Sterling, but this is unlikely to be felt over the next month.|
|After a relatively uneventful summer, US politicians are doing their best to ensure a lively start to the Autumn, with both the 2014 budget and the debt ceiling limit needing approval in October. The lack of agreement over the budget for the coming year has already caused a partial shutdown of US government agencies.||In Congress Republicans have refused to sign the budget unless “Obamacare” health reforms are delayed by a year; in the Senate Democrats have refused to compromise on the current schedule. With the debt ceiling being reached on 17 October, both sides may wait until the two debates blend into one – raising the stakes. Agreement will be reached – the debt ceiling raised, and the budget approved – but not without some histrionics and a little time.|
|A 2-3 week shutdown of the US government could take nearly 1% off the fourth quarter GDP numbers – and uncertainty is never welcomed by the financial markets.||Given that Ben Bernanke did not “taper” quantitative easing in September, there is almost no chance that he will do so at the end of October. Data has not improved, and if the government shutdown has been drawn out over a number of weeks, continuing liquidity support seems likely.|
Europe ex UK
|Economically, little is expected to change for Europe throughout the month of October.||In general, sentiment indicators are likely to be positive, but some key hard data such as unemployment will still be poor.|
|Politics is coming back to the fore in Europe at the moment; Chancellor Angela Merkel must form a Grand Coalition if she wishes to remain German leader.||Germany, the economic powerhouse and implicit financial backstop of the Eurozone, has been capably led by Mrs Merkel throughout the crisis so far. However, should the coalition discussions take longer than a couple of weeks, uncertainty will begin to creep back into the markets. We believe that a Grand Coalition will be formed; and although Mrs Merkel will have to make some concessions, the bulk of her authority will remain.|
|After a rare summer of placidity, Italian politicians are becoming fractious once more. Silvio Berlusconi is once more at the centre of the issue.||Resignations from the governing coalition have forced Prime Minister Letta to call for a vote of confidence in his government. Again, this should pass, although probably not without political cost to Mr Letta.|
|Shinzo Abe, Prime Minister of Japan, is going to confirm that there will be a consumption tax rise (equivalent of VAT) from 5% to 8% in 2014.||Corporate confidence is high in Japan, as a weak Yen and consumer spending have boosted forecast profits. There is a risk that the consumer spending may in fact be “borrowed” from next year, by people spending now to avoid the consumption tax rise. However further stimulus by Mr Abe should mitigate this effect somewhat.|
|China has launched a free-trade zone in Shanghai – but interpretations of the freedom conferred have varied widely.||There has been speculation that in addition to the reduction of import tariffs and easier access for foreign companies, things may be taken a step further. Financial decoupling from the rest of China is one such radical notion, with interest rates and currency exchange rates mentioned as likely instruments. It may also allow foreign media outlets such as Facebook to be accessed.|
|Present Situation||Next Meeting||Expectation||Source|
|Bank of England||0.5%||10 October||No action expected||Click here|
|US Federal Reserve||0% – 0.25%||30 October||No action expected||Click here|
|European Central Bank||0.50%||2 October||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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