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Manufacturing Output Up

16 Jan 2018

Ahmer Tirmizi, Investment Manager

This week we again review economic and financial news out of the UK, US and Europe and provide an update of markets and our portfolios.

Manufacturing Output Up

UK manufacturing output grew at its fastest rate since early 2008, after posting 0.4% month-on-month growth in November, the seventh consecutive month of expansion. Benefitting from the weaker value of Sterling and global growth, the main drivers were renewable energy projects, boats, aeroplanes and cars for export. They helped push output 3.9% higher in the three months to November versus the same period in 2016.


NEWS

UK UPDATE
Last week, Sterling jumped to its highest level against the US Dollar since the Brexit vote, following a media report that the Netherlands and Spain were open to a softer exit deal for the UK. The Pound rose more than 1% to US$1.3733 on the evening of 12 January, its highest since the Vote to Leave on 24 June 2016, when the currency slumped. Before that point, Sterling had traded around the US$1.49 mark.

GERMANY UPDATE
An end to Germany's leadership vacuum may finally be in sight as the Social Democrats (SPD) reached a preliminary agreement of 28 pages of “give and take” on Friday morning with Chancellor Angela Merkel's conservatives. And while the talks closed off some “turbulent” debates on key issues, there are, however, plenty of hurdles still left to clear. In particular, SPD head, Martin Schulz has to ‘sell’ the deal to his party convention in Bonn on Sunday 21 January. This is expected to be difficult given the SPD blames its own election woes on its role in the last coalition, where it was the second placed party to the Conservatives, and since some of its “core demands” going into the marathon talks have been watered down.

US UPDATE
US inflation strengthened towards the end of 2017, giving a boost to expectations that the Federal Reserve (Fed) will again raise rates as early as March on the back of rapid economic growth and low unemployment. Core US consumer prices rose at their fastest pace in almost a year, increasing 0.3% in December versus the previous month, according to the Labor Department. Prices excluding food and energy were up 1.8% year-on-year, compared with the 1.7% noted in the previous month. The Fed has previously talked about three rate rises in 2018, but some forecast a fourth rate rise taking place given the strength of the economy and since the tax bill may provide some additional short term uplift.


PORTFOLIO ACTIONS

While 7IM trimmed its exposure to gold in portfolios in December, the holdings in the commodity are still overweight versus our strategic asset allocation. We continue to believe that tail risks may yet have a negative influence on markets. In a world that has seen equities and bonds both move higher, there is still appetite for this asset class as an ultimate safe haven.

Since mid December, the price of the commodity has moved higher by nearly 8.5% and could rise further. While investors often view gold as less attractive following rate rises, analysis has shown that historically gold has actually risen in value in previous rising rate environments, while the weaker US Dollar has now made the dollar-denominated commodity cheaper for buyers in other currencies.


THREE ANNOUNCEMENTS DUE THIS WEEK

17 Jan –Inflation Rate (Dec) // 18 Jan –US Michigan Consumer Sentiment Prelim. (Jan) // 19 Jan –UK Retail Sales (Dec)

SOURCES: BLOOMBERG; REUTERS; 7IM.

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The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.
The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.

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