This week, we look at the price of Brent crude oil, and review news moving markets coming out of the UK, EU and US. Three pending data releases due this week are also flagged.
The cost per barrel of Brent crude oil rose above the US$80 mark on Monday after opening just below, and reached its highest level since November 2014. The increase results from the shortfall that the world is facing as a result of US sanctions on Iran which take effect on 4 November. On Thursday 20 September, Donald Trump tweeted that Organization of the Petroleum Exporting Countries (Opec) should help to push oil prices lower. It was a suggestion that both Opec and Russia rebuffed, with the Saudis stating that any increase would only come “if there is a need”.
UK inflation increased to result in prices growth of 2.7% year-on-year in August, up from 2.5% in July, and which was a surprise given expectations were for a rate of 2.4%. The Office for National Statistics, using the consumer prices index as the measure, flagged that the increases were due to more expensive theatre shows, sea fares and autumn clothing. Downward pressure on pricing came from mobile phone charges, and furniture and household goods. UK retail sales also rose by a stronger-than-expected number of 0.3% in August, which takes the year-on-year increase to 3.3%.
The flash estimate of the IHS‘s composite purchasing managers’ index (PMI) for September dropped to 54.2, down from 54.5 in August and a four month low on the back of further trade tensions between China and the US. The survey revealed that business optimism remained close to two-year lows, with new orders lower and firms reluctant to take on new staff. However, any number over 50 represents growth and expectations are that the region’s economy will remain on course due to the strength of the labour market.
The US administration imposed a 10% tariff on an additional US$200bn of Chinese imports, covering a long list of produce from "frozen retail cuts of meat of swine" and live eels through to "monopods, bipods, tripods and similar articles of aluminum”. It means that more than half of all Chinese imports now carry a tariff. In retaliation, Beijing slapped duties of up to 10% on US$60 billion of American imports, including aircraft and coffee. While China faces a problem in that it only imports around US$130bn in goods, versus American’s importation of US$500bn of Chinese goods, experts seem confident of China’s ability to respond given they may even devalue its currency to offset the impact of the tariffs.
Following the latest tactical asset allocation discussions, the 7IM investment team has decided not to make any major changes to the portfolios.
The team’s global economic outlook has not changed significantly since their previous asset allocation discussions last quarter, and it was noted that the headline risk appetite is unchanged. The global economy remains healthy, with both the US and Europe continuing to grow strongly, while China is due to launch more stimulus.
The main source of uncertainty for the portfolios comes from the UK, with Brexit negotiations ongoing and no clear outcome in sight. The team continue to review the situation, with a focus on insulating the portfolios from any sharp moves in the value of Sterling.
THREE ANNOUNCEMENTS DUE THIS WEEK
27 Sep – UK Consumer Confidence // 27 Sep – US Durable Goods Orders // 27 Sep – EU Business Confidence
SOURCES: IHS, ONS, REUTERS, 7IM
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