This week sees Italy facing fresh elections and we review how our Japanese Yen holdings, among others, are supporting portfolios. We also look at three pieces of news published last week and flag three upcoming economic data releases.
The President’s rejection on Sunday of the nomination of the Euro-skeptic Paolo Savona for economy minister has set the country on track for new snap elections, a move reaffirmed after appointing the former International Monetary Fund official Carlo Cottarelli (known as ‘Mr Scissors’ due to his approach to government budgets) as the interim prime minister. The tensions between the pro-EU lawmakers and electorally victorious anti-EU factions spilled over into financial markets as a result of the uncertainty, although some were heartened that the elections mean a delay to any re-negotiations of Italy’s debt.
Retail sales rose by a better-than-expected 1.6% in April as consumers resumed spending after unseasonably cold weather earlier in the year. The figure was boosted by a 4.7% surge in petrol sales. However, the Office for National Statistics that published the figures urged caution as the underlying position remains subdued, with the volume of goods sold over the last six months broadly unchanged and the numbers for the three months to April saw sales rise just 0.1% on the previous quarter.
With negotiations already difficult as the region decides how it will recoup some of the hole left by Britain leaving the EU, talks stepped up in earnest as plans were revealed to shift more than €30bn of Eurozone funding away from central and eastern Europe, effectively slashing Poland and Hungary’s share of “cohesion” spending, and boosting budgetary support for Greece, Italy and Spain. The changes see central and eastern Europe facing a far bigger cut than the overall 10% real reduction planning. The fall in spending for most countries is the maximum permitted national losses before the commission’s “safety net” takes effect.
President Donald Trump seems to be running out of time if he is to deliver his much vaunted revamp of the North American Free Trade Agreement this year, with those involved in the negotiations saying that the crunch is largely of his administration's own making. With months passing before the US put forward their proposals, there is now an unusually tight timetable, which will leave little time to iron out differences since it was a US specification that the deal be done this year. The core issues include U.S. and regional content requirements for the auto industry.
The Yen has recently strengthened on the back of political fears in Italy, weaker Q1 growth in Europe and rising Middle East tensions. 7IM portfolios have often benefited from their diversified approach to other currencies, but most recently in particular from our investment in Japanese Yen. The expansion of our holdings in late 2017 and a further increase in March took the overall holdings in the currency to a level in line with our long term strategic asset allocation position, which is 6.5% in Yen in our Balanced portfolio as an example.
7IM is committed to a basket of holdings that is aimed at mitigating against risk, which – alongside the Yen – includes, US Dollar, gold, and equity puts. These holdings should help smooth portfolio returns in the event of continued market volatility.
THREE ANNOUNCEMENTS DUE THIS WEEK
31 May – UK Consumer Confidence (May) // 31 May – US Personal Income (Apr) // 31 May – EU Unemployment Rate (Apr)
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.