This week we look at UK inflation, as well as UK unemployment numbers, EU GDP growth and Trump’s proposal that US stocks report on a six-monthly basis. We also flag what’s been happening in markets.
The Office for National Statistics (ONS) indicated that the consumer price index increased by 0.1% in the first uptick since November 2017 following a flat three months. The growth in prices was triggered by the rising cost to the consumer of computer games and transport – brought about by the 50% increase in oil over the last year – but offset by a fall in the price of clothing. The increase is lower than the 0.2% increase predicted by the Bank of England, who believe inflation will drop back to just above its 2% target in two years’ time.
UK unemployment fell by 65,000 to 1.36 million in the three months to June – its lowest level in over 40 years – while the employment rate fell to 4.0% – the lowest rate since February 1975. Wages, excluding bonuses, grew by 2.7% in the three months to June, compared with a year ago, although experts remain undecided on whether the UK is nearing a state of ‘full employment’ given the number of inactive workers wanting a job fellby 103,000 in the past year, However there are still some 300,000 people in part time employment and 100,000 temporary workers that all want to work full time. These numbers are decreasing though, suggesting full employment and higher wage packets may not be far off.
Eurozone second quarter GDP growth was revised up to 0.4% from an initial reading of 0.3%. The increase was supported by the German economy expanding by a larger-than-expected 0.5% in the second quarter, helped by solid domestic demand, which also offset concerns about an export led slowdown. The news would have been welcomed by the European Central Bank for whom fading growth would have been a problem given its plans to phase out bond buying, although growth is still lower than at the end of 2017 when the region’s economy expanded by 0.7% quarter-on-quarter.
President Trump has asked the Securities and Exchange Commission (SEC) to study a move to a six month reporting schedule, instead of the current three month cycle, to allow companies more “greater flexibility & save money”. The current quarterly reporting is cited by experts as one of the prompts for corporate short-termism. Jay Clayton, the SEC chair, stated that the regulator was already looking into ways to foster long term capital creation, while balancing the needto protect investors. Many UK companies stopped quarterly reporting after the FCA removed the requirement in 2014.
While 7IM portfolios saw an increase in fixed income holdings as a result of decisions taken during the last tactical asset allocation discussions, the proportion of portfolios allocated to bonds remains low (29.5% using the value of a Balanced portfolio as an example) versus our long term strategic neutral position – off by nearly 10%. In addition our overweight for emerging markets exposure means that even this 29.5% allocation looks higher than it is with regard to developed market holdings.
However, it’s a position that we’re happy to maintain as interest rates are set to continue to rise in the UK and US. And the European Central Bank (ECB) has started talking about interest rate moves after the end of its bond buying programme, which is still set to cease by the end of the year.
THREE ANNOUNCEMENTS DUE THIS WEEK
22 Aug – US Existing Home Sales (Jul) // 23 Aug – EU PMI Flash Figures (Aug) // 24 Aug – UK Mortgage Approvals (Jul)
SOURCES: BLOOMBERG, EUROSTAT, REUTERS, ONS, 7IM
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