This week, we look at the Bank of England interest rate decision, flag three pieces of news moving markets last week and highlight three upcoming data releases this week. We also give an update on our tactical asset allocation process.
The Bank of England unanimously voted to keep base interest rates on hold at the 0.75% agreed at its 2 August session. The meeting minutes revealed the view behind the non-move stating that “there have been indications, most prominently in financial markets, of greater uncertainty about future developments in the [EU] withdrawal process”. The committee went on to say that “any future increases in bank rate are likely to be at a gradual pace and to a limited extent.” Many lenders welcomed the news given they are still processing the 0.25% increase. However, the financial sector came under criticism because the rate rise has not as yet been passed on to many savers.
Mark Carney has agreed to stay on as the governor of the Bank of England until January 2020, seven months beyond his original leave date, but giving less time to the role than the June 2020 date that had been requested citing "various personal pressures”. The news will reassure many who believe that a change in the person sitting as governor could cause unease in the markets just months after Britain’s date for departure from the EU on 29 March 2019. The announcement also included the news of the reappointment of Jon Cunliffe as the deputy governor until the end of October 2023.
Mario Draghi, the European Central Bank (ECB) president, stated in minutes released from the central bank’s July meeting that the uncertainty surrounding the ECB’s inflation outlook is now “receding”. He reaffirmed that the ECB would halve monthly bond purchases to €15bn from October, and the purchasing programme would stop at the end of 2018. The news came despite the EU cutting GDP growth forecasts for this year and next. This was because of labour market improvements and rising wages, which are close to average growth levels that are similar to pre-Financial Crisis levels.
A series of statistical publications came out last week. Headline consumer prices rose 2.7% year-on-year in August, down from the 2.9% rate of increase recorded in July. Core inflation meanwhile also eased, rising 2.2% year-on-year versus the 2.4% growth in July. US retail sales rose just 0.1% in August, the lowest increase in six months, due to weakness in clothing and department store sales, which saw sales drop 1.7% and 1.0% respectively from July. The University of Michigan’s index of consumer sentiment bounced sharply from August’s seven month low (96.2) to touch a six month high in September (100.8).
This week will see the 7IM investment team decide on potential changes to the portfolios. These changes are based on the tactical asset allocation discussions held over the last two weeks as to where financial markets might move over the next three to 18 months.
One area for review may be in emerging markets equities. These have faced some headwinds recently on a number of fronts. So, in addition to domestic situations affecting some (but not all) markets, the recent strength of the US Dollar, mixed economic headlines and trade tensions have had a negative impact on overall performance for the group as a whole. However, as with our recent decision to take profits on India, 7IM continues to evaluate the investment opportunity for individual markets, and as such may be able to select opportunities that might have been oversold in broad market actions.
THREE ANNOUNCEMENTS DUE THIS WEEK
19 Sep – UK Inflation Rate (Aug) // 20 Sep – US Existing Home Sales (Aug) // 20 Sep – EU Consumer Confidence Flash (Sep)
SOURCES: EUROSTAT, ONS, REUTERS, 7IM
Before you go
We hope you’ve enjoyed reading this article. Use the Get in touch box below to sign up for future investment updates. These take the form of regular market and investment updates and our 7IM webinar series.
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.