This week covers Trump’s popularity ratings, Purchasing Manager Indices in both the Eurozone and UK, and US unemployment figures. We focus on US Treasuries in our portfolio update.
HOW (UN)POPULAR IS TRUMP
80 days in office and Donald J. Trump is the most unpopular president since records began. At this stage in his presidency, Barack Obama was polling at 61%. Truman was the most popular (87%). The next most unpopular president was Clinton with 53% ratings, but at least the ‘majority’ still favoured him. Trump’s popularity is also down with his own party, dropping eight points since January. Why does this matter? It puts the likelihood of getting his spending and tax bills through much lower, especially since 2018’s mid-term elections may stop Republicans backing Trump as they did with the Gorsuch nomination to the Supreme Court.
MIXED MESSAGES FOR UK SENTIMENT
March data for the Markit / CIPS Purchasing Managers Index (PMI) pointed to a rebound in growth in the UK service sector, with business activity and incoming new work both rising at the strongest rates in 2017. The headline seasonally adjusted Business Activity Index picked up from 53.3 in February to reach 55.0 for March. However, things were not so positive on the manufacturing front, where the number fell to 54.2 in March, down from 54.5 in February and well below the market consensus of 55.1 as output and new order growth slowed.
EUROZONE EXPANSION SOLID
Eurozone output and new order growth both accelerated to near six-year record highs in March, rounding off the best quarter for the region’s economy since Q2 2011. The latest Markit Eurozone PMI Composite Output Index rose to a 71-month high of 56.4 in March, up from 56.0 in February, but below the consensus of 56.7. The index has now signalled expansion in each of the past 45 months, with output growth registered across both the manufacturing and service sectors. This rate of expansion has now improved to near six-year highs in both cases.
US UNEMPLOYMENT AT 10-YEAR LOW
Unemployment in the US fell from 4.7% in February to just 4.5% – the lowest level since May 2007 and well below the 5% viewed as ‘full employment’. However, the number of jobs created (98,000) was below expectations (180,000), lower than January and February’s numbers (200,000) and also in the zone of the number of jobs that the US economy needs to create to stay apace with the country’s growing work force. Reasons for that number include it being a statistical anomaly, since it was measured when the North East was hit by storms, or even that the low unemployment rate means that companies are not recruiting because there aren’t the people available to recruit. Next month should provide clarity.
One of the main messages over the last few months from 7IM has been our increased allocation to alternative strategies: investments that are designed to be uncorrelated to equities or are market neutral. They are effectively a replacement for bonds, which we believe are not such a safe haven due to the effects of Quantitative Easing. However, we remain open to fixed income opportunities. Our investment in Gilts in Q4 2016 highlights this. The difference in spreads between Gilts and 10 year Treasuries signposts an investment opportunity. We now see positive returns for Treasuries in three of our five investment scenarios and the probabilities attached to each scenario is also now higher. While there could be disappointment for the US bills given the market has priced in any Fed future action, they offer good tail risk protection.
THREE ANNOUNCEMENTS DUE THIS WEEK
11 April – Eurozone Industrial Production // 12 April – UK Unemployment Rate // 14 April – US Inflation
SOURCES: GALLUP, BLOOMBERG, 7IM
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