This week we look at the cost of the hurricanes in the US, cover three pieces of news from last week, flag three sets for data coming out this week, and look at what we’re doing in our portfolios.
While the clean-up from Hurricane Harvey has barely begun and Irma is still battering Florida, the price tag for the damage is already being assessed as the biggest yet for the US. However, while the Texan and Floridian economies are likely to be hit hard, the only figures likely to be impacted nationally will be jobless claims, which are likely to spike. Economists predict that while US Q3 GDP growth may slow very slightly, neither event will make much of a mark on national data despite the level of devastation being wrought.
UK PURCHASING MANAGER INDEXES MIXED
The IHS MarkitUK purchasing managers’ indexes (PMIs) point to a mixed picture. The manufacturing sector rose to a four-month high of 56.9 in August, up from 55.1 in the previous month, but the service sector PMI fell from 53.8 to 53.2 in August. Meanwhile, the PMI for the construction sector showed activity expanding at its slowest pace for a year in August. But while the manufacturing PMI looks rosy and suggests that the economy may, partially due to the weakness in Sterling, be rebalancing towards the production of goods, manufacturing continues to only contribute about 10% of the UK’s GDP versus services that contribute around 80% of the value of all our economic output.
EU EASING ENDING
The European Central Bank (ECB) increased its economic growth forecast for 2017 for the Eurozone from 1.9% to 2.2%, the fastest growth in 10 years. In response to the new data, ECB President Mario Draghi indicated that there are plans to begin scaling back the ECB’s quantitative easing programme and these would be unveiled next month. However, he also noted that "a very substantial degree of monetary accommodation" was still needed to help boost inflation. He also stated that the recent rise in the Euro (up 13% in value against the US Dollar year to date) was a source of "uncertainty".
FOURTH FED OFFICIAL DEPARTS
Stanley Fischer, 73, has resigned and will leave the Federal Reserve board next month, creating another vacancy on the council that oversees the US central bank and the country’s monetary policy. Three spots on the seven-member board were already vacant although Trump has nominated Randal Quarles, a former Treasury official, to fill one of those vacancies. The openings provide President Trump with a chance to shake things up at the central bank. The term of Federal Reserve Chair Janet Yellen is also due to expire in 2018 and it is unclear as yet whether Trump will reappoint her.
7IM remains underweight in UK equities given that the outlook remains uncertain. That uncertainty covers economic growth, which the data seems to show to be slowing, and also the value of Sterling. With momentum for a soft Brexit gaining ground, there is a chance that Sterling’s value could spike, which in turn would leave FTSE 100 investors casting around for new investment opportunities as the value of company earnings would drop given they’re largely denominated in foreign currencies. We invested in UK stocks through our own equity value strategy, which offers an alternative approach to market-cap weighting and screens UK stocks on a number of fundamental measures, and through a futures contract that gives us exposure in a liquid form –allowing us the ability to make quick tactical changes to asset allocation if needed.
THREE ANNOUNCEMENTS DUE THIS WEEK
14 Sep –Bank of England Interest Rate Decision // 14 Sep –US Inflation Rate // 15 Sep –Eurozone Q2 Wage Growth
SOURCES: THE GUARDIAN, BLOOMBERG, REUTERS, 7IM
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