This week, we look at the latest US GDP data, and review three key pieces of economic news coming out of the UK, EU and US. We also highlight the latest change in portfolios by the 7IM investment team.
The US economy saw growth increase to 4.1%, up from 2.2% in Q1 2018 and just short of consensus expectations of 4.2%. President Trump hailed the numbers as “amazing” and claimed the good news as a win for his policies. And while he has also stated that he believes the figure to be “very sustainable”, others remained unconvinced, highlighting that 1% was down to soybean exports being shipped ahead of China’s retaliatory tariffs, since the Federal Reserve may again increase interest rates and the US Dollar could strengthen.
The Bank of England released figures flagging that the UK mortgage market had seen activity pick up to reach a five month high after 2018 started weakly. Some 65,519 mortgages were approved, up from the 64,684 approved in May and the 63,120 approved in March. Remortgages were again higher than in March (47,895 versus 47,008 respectively), although they dropped month-on-month having stood at 51,669 in May. Consumer credit growth, meanwhile, remained broadly the same as in previous months.
The European Central Bank announced at the end of their latest meeting of the Governing Council that there would be no change either to its interest rate policy or to its bond buying programme, which will continue to see assets bought until September 2018. At the press conference, Mario Draghi giving an upbeat assessment of the economy saying the region was “proceeding along a solid and broad-based growth path”, and “took note” of the joint US-EU statement on the de-escalation of the trade tensions as a “good sign”.
While the economic numbers may have given Trump a break from trade tariff threats, he used the occasion to highlight yet more may be on the cards. This follows his statement that “As the trade deals come in one by one, we're going to go a lot higher than these numbers, and these are great numbers.” Meanwhile, plans have been put in place to offer a one-off US$12bn aid package to US farmers – a key voting bloc for Trump – with the intention of providing short term help as longer term deals are negotiated. Confusingly, however, after his meeting with Jean-Claude Juncker, Trump stated that he was opening up the European market to Iowa farmers despite the fact that agriculture was not covered in any discussions.
The investment team has switched 7IM’s gold allocation to an investment in commodities, buying a holding worth 2% of the value of the portfolios across the whole risk profiles. The investment was in the form of a structured note that was issued by BNP and offers dynamic curve positioning. This means that BNP systematically buys either the near or long dated contracts to minimise the cost of carry from holding the position. The long term aim (although there are never any guarantees) is to deliver to better returns versus the benchmark.
The underlying positions are in commodity futures and not in physical commodities or an exchange traded fund. The investment is spread broadly across as a number of types, including: petroleum; agriculture; natural gas; base and precious metals; and livestock.
THREE ANNOUNCEMENTS DUE THIS WEEK
01 Aug – US Interest Rate Decision // 02 Aug – UK Interest Rate Decision // 03 Aug – EU Composite PMI Final Numbers
SOURCES: BANK OF ENGLAND, BLOOMBERG, REUTERS, ONS, 7IM
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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.