Tower Bridge

Countdown to Christmas

Jack Turner, Research Analyst

The usual weekly 7IM update provides an overview of events in the UK, Germany and the US and gives an insight into the tactical asset allocation process now underway.

Countdown to Christmas

Despite connotations of December being a slow month in our industry, it has actually been very productive historically. In fact, since 1950, the S&P 500 has had 50 positive Decembers and has been negative just 17 times - making it the most common month to see positive returns. Further still, the average December return over the last 67 years is 1.54%, the highest of any month. And if the US equity market sticks to tradition, and finishes the month up, 2017 will be the first calendar year in its entire history to yield no negative months.


NEWS

UK UPDATE
The latest UK IHS/ Markit manufacturing purchasing managers’ index rose to 58.2 in November, up from 56.6 in October and marking a 51 month high. The score is the 10th highest in the data set’s 26 year history. Output, new orders and employment all rose at faster paces than in previous months and the investment new goods orders increased at their steepest pace since August 1994. The expansion was broad based across sectors, with demand for UK investment goods, such as plant and machinery, particularly encouraging as it suggests that capital spending is on the rise, and especially in the domestic sector, while strong export have also supported the positive figures.

GERMANY UPDATE
The Ifo index of German business sentiment rose to 117.5 in November from 116.8 in October and set a fresh record high for the fifth time this year. However, it was noted that around 90% of firms’ responses had been submitted before the end of the ‘Jamaica’ coalition talks on 26 November – so called because the colours of the parties involved make up the same as the Jamaican flag with black for the Christian Democratic Union/Christian Social Union, yellow for Free Democratic Party, and the green of the eponymous party. However, many believe that the leadership that all parties would like to see Germany continue to show at a European level will encourage people to come back to the negotiations without the need to go back to the polls.

US UPDATE
Donald Trump enjoyed his first legislative victory as president as the US Senate passed a historic bill to overhaul the US tax code for the first time since the 1980s on 02 December. The bill is controversial since it is seen as bestowing huge benefits on US corporations and the wealthiest Americans, and adds around US$1.5 trillion to the US deficit.


PORTFOLIO ACTIONS
The team has begun its formal quarterly tactical asset allocation process to determine whether the Portfolios need to be revised based on current market conditions and economic expectations. The process starts with a review of all the main regions of the world, looking at economic and political developments that could impact asset returns over the next three to twelve months. The team then draws up a set of forward looking scenarios that are presented to the Asset Allocation Committee, which consists of the 7IM investment team and external representatives, who provide expert insight into economics, financial markets and politics. The team then assess the probability for each scenario, and then overlay these probabilities onto forecasted returns to produce expected returns for each asset class.


THREE ANNOUNCEMENTS DUE THIS WEEK
07 Dec – Eurozone Q3 GDP Growth 3rd Estimate // 08 Dec – UK Balance of Trade // 08 Dec – US Non Farm Payrolls

SOURCES: BLOOMBERG; IHS/ MARKIT; 7IM

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