This week sees an update on news out of the Bank of England, as well as three key updates from the US, EU and the UK. The investment team are still reviewing their tactical asset allocations.
The Bank of England increased the prospect of an interest rate rise in August after its chief economist, Andy Haldane, joined two other members of its rate-setting monetary policy committee (MPC) in voting for an immediate hike in borrowing costs. It is the first time since joining the MPC four years ago that Haldane changed sides, breaking with the majority of the nine member rate-setting panel to join Ian McCafferty and Michael Saunders in calling for the increase in interest rates. The move is likely to heighten speculation that The Old Lady of Threadneedle Street could be gearing up for a base rate rise in two months’ time, despite concerns about the UK economy.
Public sector borrowing fell to £5bn in May, down from the £2bn from a year earlier, according to figures from the Office for National Statistics (ONS). The fall was bigger than expected and brings borrowing for the financial year to date to £11.8bn, £4.1bn less than in the same period in 2017. Meanwhile, the ONS revised down its figure for government borrowing in 2017/18 to £39.5bn – the lowest annual level of borrowing in 11 years. The figures come as Chancellor Philip Hammond prepares to reaffirm his promise to reduce public debt, despite Prime Minister Theresa May's promise to increased spending on the NHS, which looks likely to be funded by tax increases instead.
The Eurozone countries have agreed a long-awaited debt relief deal for Greece which gives Athens more time to repay the €96.9bn of loans. The deal also extends the period during which Greece will pay little or no interest. Instead, Eurozone governments are also giving Greece a final cash loan of €15bn to help it keep paying its bills. Following three bail-outs since 2010, the country's economy shrank and unemployment surged. Greece's economy has since stabilised, but it still faces the problem of making payments on its accumulated debt pile, which stands at about 180% of GDP.
The European Union (EU) has introduced retaliatory tariffs on US goods as a top official launched a fresh attack on President Donald Trump's trade policy. The duties on €2.8bn (£2.4bn) worth of US goods came into force on Friday 22 June. Tariffs have been imposed on products such as bourbon whiskey, motorcycles and orange juice. Meanwhile, in a tweet on the same day, President Trump threatened to go further by slapping a 20% tariff on all imported EU cars. The duties on steel and aluminium started on 1 June and affect the EU, Canada, Mexico and other US allies, including India.
This week sees the 7IM Investment Team concluding their asset allocation discussions as to where financial markets may move over the next three to 12 months. With the external views gathered from the Asset Allocation Committee, the team will now conduct their usual asset allocation process, and subsequently change any positions in portfolios to reflect these views and support performance.
The team remains broadly neutral on portfolio risk versus our longer term strategic asset allocation, but continues to look at the likelihood of tail risks coming to the fore. Here, the key risks that remain include a Trump-led trade war becoming more tangible as more nations become pitched against the US view of the world, and whether Italy will once again need to hold elections if the coalition government fails.
THREE ANNOUNCEMENTS DUE THIS WEEK
27 Jun – US Durable Goods Orders // 28 Jun – EU Business Confidence (Jun) // 29 Jun – UK Consumer Confidence (Jun)
SOURCES: EUROSTAT, ONS, REUTERS, 7IM
Before you go
We hope you’ve enjoyed reading this article. Use the Get in touch box below to sign up for future investment updates. These take the form of regular market and investment updates and our 7IM webinar series.
Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority and by the Jersey Financial Services Commission. Member of the London Stock Exchange. Registered office: 55 Bishopsgate, London EC2N 3AS. Registered in England and Wales number OC378740. The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guide to the future. The investments may not be suitable for everyone and if you have any doubts you should contact your investment advisor.