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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|Mark Carney has had a tough first two months as Bank of England Governor – most of his statements have been met with completely opposite market movements to those he would have desired.||The Bank of England’s “forward guidance” policy was widely felt to have so many caveats as to render it almost useless in terms of information. Gilt yields have risen, and Sterling has strengthened – to combat this, we may see an MPC statement that highlights easy monetary policy on the 5 September, as Mr Carney tries to remind markets that low interest rates are here to stay.|
|Good economic data continued during August, with Q2 GDP Growth revised upwards to 0.7%, solid housing market numbers and further developments in shale gas exploration (although not uncontested).||Unlike last year with the artificial boost of the Olympics, this type of growth should be sustainable. We expect further improvement in September – indications from businesses in the service sector are particularly encouraging; the services PMI should remain above 60.|
|US GDP growth in Q2 2013 was higher than expected at 2.5%, as exports increased dramatically.||As the effects of the fiscal cuts dwindle, the growth in the private sector should be the main driver of the economy. The third quarter of 2013 should see more solid US growth, although this will not become apparent until October/November.|
|One potential negative drag for the US economy could be a slowdown in the housing market, as higher mortgage rates deter consumers from entering the market.||Despite the increase in borrowing rates, they are still close to all time lows, and in general house prices are far from exorbitant. A temporary slowdown in home purchasing may occur, but the opportunity is too tempting for people to avoid in the long term.|
|The Federal Reserve meeting at the end of September is the subject of much speculation, particularly with regard to “tapering”.||Markets are expecting at least a serious discussion of the tapering of QE in September, and perhaps even the actual reduction of purchases. If there is a reduction, it is likely to be accompanied by a commitment to low interest rates.|
Europe ex UK
|The Eurozone exited an 18-month long recession in the second quarter, with GDP growth creeping into positive territory at 0.3%. Not every country is growing again, but the majority showed positive momentum.||Germany and France posted positive GDP numbers, but the real beacon of hope was Portugal, with 1.1% growth – giving hope to other countries that there is life after austerity. Expect confidence indicators to keep rising.|
|Inflation remains very subdued in the Eurozone, giving the ECB freedom to loosen policy should they feel the need.||Mario Draghi is unlikely to signal further easing policies at September’s meeting, preferring to let positive economic data and the ongoing recovery play out. Rates will remain unchanged.|
|The German election at the end of September will be closely watched.||With political efforts being directed at international affairs at the moment, some focus has been lost here. Nevertheless, we believe that Angela Merkel will be reinstalled as Chancellor, although the composition of the coalition may alter.|
|The possibility for some type of intervention in Syria is growing. The situation is changing rapidly with global powers on opposing sides, and as we write, UN approval is far from certain.||However, as ever, the market hates uncertainty – in this case, the oil price, relatively stable for the past year or so, has seen a large jump in price over the past week. A move above $125 per barrel would put some pressure on the global recovery. Similarly, we have seen a rally in the gold price, another common safe haven asset when geopolitical uncertainty grows.|
|Present Situation||Next Meeting||Expectation||Source|
|Bank of England||0.5%||5 September||No change expected||Click here|
|US Federal Reserve||0% – 0.25%||18 September||Possible start of “tapering”, interest rates to remain emphatically unchanged||Click here|
|European Central Bank||0.50%||5 September||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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