This week we cover the North Korean missile over Japan, three pieces of economic news out of the UK, Eurozone and the US, and discuss the investment ‘safe havens’ we have in our portfolios.
Just before 06:00 local time, 21:00 GMT, North Korea launched a missile that flew over Japan’s northern island of Hokkaido before landing in the sea. Sirens woke the local residents who were urged to take shelter. The Japanese Prime Minister issued a strong response and called for an emergency meeting of the UN Security Council. North Korea remained defiant and stated that it would continue with its missile programme despite the US-led economic sanctions. This is the first time North Korea has fired what is thought to be a ballistic weapon over Japan.
UK HOUSE PRICE GROWTH SLOWS
The growth in house prices slowed to 2.1% in August from 2.9% in July and the number of mortgages approved for house purchases fell to a nine-month low according to Nationwide. However, the bank still expects prices to rise by about 2% overall in 2017, because of a decrease in the supply of new homes coming to market. The news followed data released by HM Revenue and Customs that showed that while over 100,000 homes had been sold in July, the third month this level was reached in 2017, the sales’ level was static compared to last year and lower than two years ago, prompting many to suggest that a slowdown is now spreading from London to other parts of the country.
EU SURVEYS SOLID
IHS Markit’s Eurozone Composite Purchasing Managers’ Index rose to 55.8 in August, up from its July lull. Manufacturing activity rose from 56.6 to 57.4, and while services fell back from 55.4 to 54.9, they are still comfortably above 50 and so signal expansion. In Germany, activity in both the manufacturing and service sectors increased over August, while in France, even though services slowed slightly, manufacturing activity expanded at its quickest pace in six years.
WILL THE US GOVERNMENT SHUTDOWN?
The threat of a US government shutdown edged closer as President Trump warned that he was prepared to shut down Congress if it didn’t agree to pay for his proposed 1,954 mile wall along the Mexican border. Congress will need to agree the budget by the end of September if it is to avoid a shut down. The last shutdown ran from 1 to 16 October in 2013 and saw some 800,000 federal employees have to take unpaid leave, while another 1.3 million went to work without knowing when they would be paid. A week’s shutdown is estimated to cost the US economy US$10 billion. Passing a new budget regularly involves in-fighting and all-night sessions for Congress, but this next month is expected to be even more difficult.
7IM’s investment team added US Dollar exposure back into the portfolios last week. Our zero US Dollar position in the funds had performed very well year to date with the trade weighted Dollar down around 10%. However, we now believe it is time to cut back that position. The decision came on the back of the improved economic data coming out of the US, and since the Dollar is also seen as a risk mitigant in times of market stress alongside Gold and US Treasuries . Investors were already wary, but tensions are only likely to rise further this week given North Korea’s stance and also China’s response to the missile launch. The Chinese Government was critical of South Korea and the US whose ongoing annual joint military drills are seen by North Korea as a rehearsal for invasion. Times like these can prompt a bounce in the value of safe havens.
THREE ANNOUNCEMENTS DUE THIS WEEK
30 Aug –UK Consumer Confidence // 30 Aug –Eurozone Business Confidence // 01 Sep –US Non Farm Payrolls
SOURCES: REUTERS, BLOOMBERG, 7IM
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