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A Christmas Of Discontent

19 Dec 2016

Jack Turner, Research Analyst

A CHRISTMAS OF DISCONTENT

 

Four strikes are set to hit the UK population over the festive season. While the strikes are very limited compared to those that caused the fall of the Labour Government in 1978-79, the increase in walk-outs marks a big change in particular over the last year given the 170,000 days lost in 2015 were the second lowest number on record. Disruptions now affect Southern Rail, British Airways, Virgin Atlantic, British airport baggage handlers and the Post Office.

NEWS

UK RETAIL SALES STRONG

Retail sales volumes increased by 5.9% in November versus the same month in 2015, mainly on the back of consumers taking up Black Friday discounts according to the Office for National Statistics (ONS). However, higher fuel costs meant the increase was weaker than October, when annual retail sales growth hit a 14-year high of 7.2%. Monthly sales in November rose 0.2%, compared to October's increase of 1.8%. The ONS data also showed fuel sales hit a two-year low last month as fuel prices rose at their fastest rate since 2011. These latest figures indicate that Q4 retail sales are running 2.1% ahead of the previous three months. However, the recently announced fall in construction output and industrial production could prevent GDP from reaching Q3’s 0.5% growth.

 

UK LABOUR MARKET COOLING?

UK unemployment remained at an 11-year low of 4.8% as the figures for the actual number of unemployed fell slightly to 1.62mn in the three months leading up to October, according to the ONS. However, there were warnings that the labour market has started to ‘cool off’ with the 31.76mn people in work "slightly down on the record set recently” and 8.91mn people of working age deemed economically inactive, which was 76,000 higher than in the previous period.

 

US CENTRAL BANK INCREASES RATES

the US Federal Reserve (Fed) raised its benchmark interest rate by 0.25% on 14 December, marking only the second increase in a decade. The central bank’s monetary policy committee members voted unanimously to raise the key rate to a range of 0.5% to 0.75%, citing stronger economic growth and rising employment. However, the Fed said it expected the economy to need only "gradual" increases in the short term, although there will probably be three rate rises next year rather than the two predicted in September.

 

PORTFOLIO ACTIONS

The team slightly increased its equity exposure with a focus on European and Japanese equities at the expense of Asia. The purchases in European equities are due to a belief by the team that the political risks are overstated in the short term, while company earnings remain solid. Meanwhile, the tilt towards US small cap equities is due to this asset class benefiting from Trump’s planned fiscal expansion and protectionist policies. Asia however remains vulnerable to Trump theatrics with Korea and Taiwan also potentially exposed, as well as China. On the fixed income front, we added to our 10 year UK Gilts position, and thereby also providing duration to the portfolios which had been reduced following the sale of US Treasuries post the Trump election triumph. In addition, their yields now back at pre-Brexit levels.

 

THREE ANNOUNCEMENTS DUE THIS WEEK

20 December - EU Current Account // 21 December - US Existing Home Sales // 23 December - Final GDP Growth Rate Q3


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SOURCES: BLOOMBERG; 7IM

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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