This latest weekly review from 7IM highlights three big bits of news from the UK, EU and US, and provides an overview of how recent news from the European Central Bank has impacted 7IM’s Euro positions.
Headline inflation fell unexpectedly for the first time since October 2016, slipping back to 2.6% in June from a four-year high of 2.9% in May. The drop is the biggest since February 2015. Core inflation also softened from 2.6% in May to 2.4% in June. The data will help UK workers who are suffering their worst period of real wage growth in over two years and probably postpones any decisions by the Bank of England to raise interest rates.
UK PROPERTY PLOPS
The number of UK homes being bought and sold fell for the third month in a row, according to figures from the HM Revenue and Customs. These showed that there were 96,910 residential transactions in June (seasonally-adjusted), which marks a fall of 3.3% on May's number, and the lowest total since October 2016. And while they are up 1% year-on-year, those figures were heavily and negatively influenced by the introduction of additional stamp duty rates in April 2016. Experts believe these numbers give a more accurate indication of the health of the market than house prices.
EUROPEAN ECONOMIC ACTIVITY SLIPS
Europe’s economic activity dropped down to a six-month low in July, according to IHS Markit's flash Purchasing Managers’ Index. It indicated that the region's recovery has lost some of its momentum at the start of the third quarter. The composite number saw growth fall to 55.8 in July, from 56.3 in the previous month and marks the lowest tally since January. The same supplier’s measure of manufacturing activity, meanwhile, slipped to 56.8 from 57.4 and the pace of activity in the also services sector slowed – down to 56.9 from a previous reading of 58.7.
President Trump suffered another setback in his attempts to replace the Affordable Care Act (aka Obamacare) after it failed to gather sufficient support to make it through the Senate. The failure led the President to recommend that Congress shouldn’t leave on their summer holidays, but he may choose to change his mind on that given the continued rumblings from the investigation into Russian influences and which sees Trump’s son and son-in-law be called to testify this week. The botching of the bill means that more time will be needed to be spent discussing an alternative or a straight repeal of Obamacare, and pushes out any dates that could see Trump’s tax and infrastructure spending plans discussed in earnest.
The European Central Bank (ECB) left its interest rates on hold and maintained that its stimulus measure will remain in place “until the end of December 2017, or beyond”, and until inflation is on a clear upward path. However, it also left a trail of clues within its latest minutes, with Mario Draghi’s latest press conference suggesting they are likely to announce some form of tapering its current Quantitative Easing (QE) policy. For instance, they include vague-sounding phrases such as “the improving economic environment” and “vanishing tail risks” suggested they “revisit” the easing bias for the QE program. This has lead to ECB loosening its control of the Euro recently – which has risen by around 15% this year. 7IM has been gradually adding to its Euro positions within it portfolios in that time and so has benefitted from the rally.
THREE ANNOUNCEMENTS DUE THIS WEEK
26 July – UK GDP Preliminary Q2 Estimate // 26 July – US Fed Interest Rate Decision // 28 July – EU Business Confidence
SOURCES: ONS, REUTERS, BLOOMBERG, 7IM
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