This week’s update brings people up to date with the latest French presidential election polls, improving UK and EU GDP growth forecasts and US job numbers. The portfolio section provides and overview of the tactical asset allocation process currently being undertaken by the team.
COULD LE PEN SUCCEED?
The latest polls show that, while scandal continues to surround François Fillon, his potential share of the first round of the French presidential election to be held on 23 April remains around the 20% point. Marine Le Pen is out in front with 27%, but only just… Emmanuel Macron remains very close.
However, while these numbers easily put Len Pen through to the second round of voting on 7 May, she is expected to lose against both Macron (60% vs 40%) and even the embattled Fillion (57% versus 43%). No one is discounting Le Pen though, especially since she’s pledged to then call a referendum on France’s EU membership.
UK 2017 GROWTH FORECAST UP
The Office for Budget Responsibility now expects the UK economy to grow by 2%, up from its November forecast of 1.4%. Growth is however expected to slow to 1.6% 2018, before gradually accelerating year-on-year to 2% by 2021. The Budget watchdog also raised its 2017 forecast for inflation from 2.3% to 2.4% given the pace of price rises has picked up. It’s set to peak in Q4 2017 at 2.7%, before then starting to fall to 2.3% in 2018-19 – lower than the previous forecast. It should then drop further to 2% in 2019.
US JOBS GROWTH MAY MEAN RATE RISE
The Bureau of Labor Statistics’ latest figures show that US businesses added 235,000 jobs in February, up from the consensus expectations of 200,000 jobs. Unemployment also fell slightly to 4.7%. The strong numbers suggest hat the US’s growth trend has continued despite fears that the first full month of President Trump would stop businesses hiring. January’s number was also revised up to 238,000 and job creation remains above the 12-month average. The figures also reaffirmed the market’s view of a rate hike by the Federal Reserve in March, with probability still at 100%.
EUROZONE OUTLOOK OPTIMISTIC
The European Central Bank (ECB) has increased its growth forecasts for 2017 to 1.8% (up from 1.7%) and 1.7% for 2018 (up from 1.6%). In addition, the bank also announced that the base interest rate is to remain at 0% and that they are still committed to the previously announced quantitative easing programme. This is despite seeing the growth more broadly spread across the 19-country bloc and given inflation is now at 2%, just over the ECB’s target that is set just below the 2% mark. Meanwhile, the increased inflation numbers led to revised expectations of future price increases – now expected to average 1.8% for 2017 and 1.7% for 2018.
Each quarter, 7IM undertakes a formal review of its portfolios. Changes are frequently needed to respond to market movements and to manage fund flows. However, each quarter, the team steps back from the noise of the market and carries out a detailed analysis of the asset classes included in the Strategic Asset Allocation. They determine if the current allocations make sense, re-evaluating future possible asset values (in either direction) and make changes to the portfolios if required.
Scenarios are mapped out against a macroeconomic matrix for which the Asset Allocation Committee, including external experts, assigns probabilities the likelihood of each scenario occurring. This thinking then feeds through to the underlying analysis for each asset class. The process typically runs for a week to 10 days.
THREE ANNOUNCEMENTS DUE THIS WEEK
15 March – EZ Employment Change // 15 March – US Interest Rate Decision // 16 March – UK Interest Rate Decision
Before you go
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SOURCES: OPINIONWAY, BLOOMBERG, 7IM