This week’s topics are the Copeland by-election, that latest data from the UK and EU, as well as an update from the Federal Reserve. We also provide an update on the portfolio.
TORIES TAKE COPELAND
By-election results strengthened the hand of Theresa May last week as the party overtook Labour to win one of their heartland seats – one which they had held for 80 years. The Cumbria win is the first by-election gain by a sitting government for 35 years. The 8% increase in votes is seen by the Prime Minister as vindication for the line she is taking in the Brexit negotiations and her alternative stance on a number of issues to that of David Cameron. It also takes the party’s majority in the Commons back up to 12, with the new seat replacing the Richmond Park one lost to the Liberal Democrats.
UK DATA WEAKENING
While Q4 GDP growth data was revised up 0.1% to 0.7%, the overall number for 2016 was revised down to 1.8%, down from 2.0%. In addition, the Office for National Statistics acknowledged views that GDP would be adversely impacted by slower consumer spending, due to its vulnerability to imported inflation, and weaker commercial investment as detailed by business surveys. The published data showed a 1% fall in investment in the last quarter when compared to the three months ending September.
EUROPEAN ECONOMIC NEWS GOOD
The latest Purchasing Managers’ Index (PMI) figures for the Eurozone were released and, if they are valid, show GDP growth in the region accelerating as the composite number for February rose to 56.0, up from 54.4 in January and above the consensus estimate of 54.3. Meanwhile, although headline inflation increased to 1.8% in January, up from 1.1% in December in the Euro area. This was in line with the consensus view and the initial estimate, and is expected to peak in February before falling back in March and in Q2. Core inflation, meanwhile, remained unchanged at 0.9%.
FEDERAL RESERVE COMMITTEE SPLIT
The minutes of the latest Federal Open Market Committee meeting show the members split as to the next step for the base rate and whether to raise in March or wait till June. Jobless claims released shows there was a modest rise in numbers, but the labour market remains tight and could trigger a spike in inflation. The debate also focused on a response by the Federal Reserve to fiscal easing should that start to show in the economic data. Meanwhile, a few members raised concerns over the high level of the stockmarket and the low level of implied volatility.
Last week provided further validation for our decision to remain invested in gold as the commodity rose in value by nearly 2%, mainly over the course of Friday. The price increase came on the back of investors’ nervousness about Donald Trump’s administration plans. He hinted at action in his latest wide-ranging speech to the Conservative Political Action Conference, but failed to provide a solid strategy. With Trump due to address Congress on Tuesday 28 February, investors believe that fiscal easing, and the inflation that would incur, would push gold higher, as would political uncertainty if foreign policy continues to be as haphazard as it has been. We will, however, continue to monitor any action on the wall between the US and Mexico and the tax to pay for that could lead to the US Dollar strengthening further, which would be negative for gold.
THREE ANNOUNCEMENTS DUE THIS WEEK
2 March – Eurozone Unemployment Rate // 3 March – UK Services PMI // 3 March – US composite PMI
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. 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.
SOURCES: BBC, BLOOMBERG, 7IM