This week we look at last week's market turbulence, three pieces of news coming out of the UK, EU and US, and flag three upcoming data releases.
Last week was a difficult time for portfolio returns with the major equity markets falling between 4% and 5%. Multiple narratives have been offered as to why markets fell so much ranging from a hawkish Fed and trade wars to Italian politics.
Although difficult to stomach at times, market volatility such as this, is to be expected. 2018 has seen almost 40 days of market moves over 1% - which is in line with long term averages. Overall, fundamentals are still in positive territory in the major economies, and therefore we remain comfortable with our current positioning.
September’s RICS survey suggests that August’s interest rate rise is dampening property demand. Although the rate rise has not raised mortgage rates by much, it has undermined confidence in the housing market. Indeed, according to Markit, the proportion of households expecting rate rises within the next six months increased to 49% in September, from 44% in August.
Industrial production in the Eurozone increased 1.0% month-on-month (m-o-m) in August, above the consensus for a 0.5% rise. This is partly due to base effects; a rebound in the production of consumer goods was one of the primary drivers, although all sectors performed strongly in August. Across countries, Germany was the outlier on the downside with a flat m-o-m reading, but the other major economies were strong. In addition, output jumped 8.0% m-o-m in Ireland due to strong performance in manufacturing.
The US September CPI (headline and core) rose 0.1%, both below consensus. The core figure was held down by a 3.0% m-o-m plunge in used car prices which subtracted 0.12% from the core CPI; excluding this hit, the core rose 0.23%, in line with the trend. Elsewhere, apparel prices rose 0.9%, and medical care mean-reverted to a 0.2% increase after the soft August number. Both primary and owners’ equivalent rents rose 0.2%, below trend, but the combination of faster wage gains and a falling vacancy rate should mean that the trend is likely to accelerate over the next year.
The recent turmoil in the world’s equity markets meant that our multi-asset portfolios had to depend on the securities held in the funds that tend to outperform in periods of market stress.
We currently hold Japanese Yen, US Treasuries and Equity Options to help smooth returns when sentiment sours in the markets, and as expected we saw positive returns in these asset classes last week.
The yield on the US Treasury fell from nearly 3.25% to finish the week at 3.15% (meaning an increase in price), the Japanese Yen appreciated against the Pound and the premium on our equity options on the S&P 500 also increased. In our most Cautious profiles we also hold gold which had its best week of 2018.
THREE ANNOUNCEMENTS DUE THIS WEEK
16 Oct - UK Unemployment Rate // 17 Oct – UK CPI Inflation Rate // 18 Oct – UK Retail Sales
SOURCES: IHS, ONS, REUTERS, 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.