The Global Outlook – December 2014

Financial News

Guest Blog Seven Investment Management 150pxIn 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 article?



United Kingdom

Issues Outlook
The November Inflation Report from the Bank of England (BoE) warned of risks to the UK economy from prolonged weakness in the Eurozone. Although the UK economy continues to expand, with both data and surveys pointing towards a resilient recovery, the BoE is unlikely to risk tinkering with monetary policy until the end of 2015. Expectations of an interest rate rise should remain subdued. Equally, with the low oil price, inflation is unlikely to be troubling BoE Governor Mark Carney any time soon.
Unsurprisingly just five months before the election, the UK Autumn Statement was used as a political platform by Chancellor George Osborne. The news that the UK budget deficit is still declining gives the current government room to throw out a few crowd-pleasing measures – which the opposition will find hard to paint as bad for ordinary people. The more progressive stamp duty tax on property could well be the impetus needed to sustain house price momentum in the UK.

North America

Issues Outlook
The United States looks encouraging – a lot of catalysts are moving in the right direction. Strong jobs growth in the past three months combined with a decline in energy prices should mean that the festive season is approached with confidence and cash by the US consumer.
The Federal Reserve meets on December 16th. Fed Chair Janet Yellen is unlikely to be pulling any presents of the Federal Reserve’s festive sack – but equally lumps of coal should also be absent. The Fed is watching unemployment decline and inflation remain low, and should continue to do so for the next couple of months. Every word of Yellen’s statement will be scrutinised, but in reality, interest rates in the US are going to be remaining low – probably until the snow starts falling towards the end of next year.

Europe ex UK

Issues Outlook
Despite fevered anticipation (has the world ever been so excited by central bankers?), the European Central Bank (ECB) made no move this month towards expanding the measures it is currently using to stimulate the European economy. Speculation has already begun about the first meeting of January 2015, and whether ECB President Mario Draghi can convince the remainder of the Governing Council to support further measures. Although he does not need unanimity to take a decision, it seems likely that he will be prepared to wait for a greater consensus to be reached. Sovereign bond purchases could be seen perhaps towards the end of the first quarter of 2015.
In Sweden, the anti-establishment, anti-immigration Swedish Democrats have forced the current government out of power, by voting down the budget proposal. The rise of populist parties has been dismissed as a flash-in-the pan, but the change in Sweden may cause mainstream politicians to think twice. A vocal minority that has a seat in government can cause upsets – political instability in Europe is likely to continue.

Other markets

Issues Outlook
From the middle of November, the mainland Chinese stock market has become far more accessible for international buyers. Mainland Chinese shares have been undervalued relative to their Hong Kong listings for some time. After a 19% rise in the Shanghai Stock Exchange over the past 3 weeks, that mispricing has reversed. In addition, loose monetary policy and a growing wave of retail investors could well see the stock index maintain this kind of momentum through the end of the year.
In Japan, Prime Minister Abe has called a snap election. Abe wants to stay in power long enough to make a difference – and is using his current wave of support to do so. Four more years of Abenomics may be enough to turnaround Japan’s economy for good.


Present Situation Next Meeting Expectation Source
Bank of England 0.5% 8 January No action Click here
US Federal Reserve 0% – 0.25% 16 December No action Click here
European Central Bank 0.5% 7 January No action Click here

Seven Investment ManagementThe views expressed in this document are for information only and do not constitute investment advice.

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