This week covers UK economic data, US and Germany consumer spending, and the final French presidential primary. We also provide an update on recent portfolio actions.
BREXIT FEARS OVERCOME
The UK’s economic numbers continue to defy the negative expectations for Brexit’s impact on the economy. However, while numbers are beating their consensus’ expectations, the focus of fears is now on prices given they’re rising across the value chain.
US CONSUMERS CONTINUE SPENDING
Consumer spending in the US rose 0.5% in January, up from the 0.2% December gain, but in line with the market consensus. The number, which accounts for more than two-thirds of US economic activity, was pushed higher as households bought motor vehicles and a range of services on the back of rising wage packets, as well as spending more on heating during winter. The figures suggest that 2017 is likely to see sustained domestic demand which could set up the economy up for faster growth. Q4’s GDP growth was 1.9%, down from the 3.5% Q3 number, although that number was skewed by a jump in soy bean exports. While growth has been restrained by the wider trade deficit, this is expected to be offset going forward by rising wages which are likely to lead to further consumer spending.
EUROPE’S CENTRAL BANK IN THE SPOTLIGHT
German’s consumer prices also rose, with January figures rising 1.9%, although expectations had put the figure at 2%. However, the rate of the price increases took many by surprise as it was the fastest for three and a half years and was up from the 1.7% increase in December. The data also provided grounds for critics of the European Central Bank (ECB) to voice their issues with the quantitative easing programme although other Eurozone leaders have pointed out that the ECB actions are aimed at supporting the whole region rather than just one economy, even though it is the largest.
FINAL FRENCH CANDIDATE CHOSEN
The results of the last of France’s presidential primaries were announced on Sunday 29 January, with the left-wing, former education minister Benoit Hamon selected to try and unite the dysfunctional Socialist party. Polls have little faith in his success and have him pegged in fifth place for the vote on 23 April. The same surveys believe it will be nationalist Marine Le Pen and the centre right candidate Francois Fillon as the favourites to go through to the 7 May runoff.
The outperformance of the US Inflation Certificates, and expectations that the notes could rise further, has led to 7IM adding the investment vehicle to their adventurous funds. Since their purchase in May 2016, the investment has returned 12% which is ahead of the performance for US Treasuries which returned -2% and inflation-linked US bonds which were flat over the same period.
In the Multi Manager funds, meanwhile, we also added to our alternative investments by investing in the AQR Managed Futures fund. The fund is designed to have a low correlation to traditional asset classes and should perform well in extreme bull and bear market environments. We have added 1% across all risk profiles.
THREE ANNOUNCEMENTS DUE THIS WEEK
1 February – US Interest Rate Decision // 2 February – UK Interest Rate Decision // 2 February – Eurozone Retail Sales
Before you go
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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: 1DECEMBER, ONS 2DECEMBER, HIGH STREET BANK AGGREGATE 3JANUARY, CONFEDERATION OF BRITISH INDUSTRY (CBI); BLOOMBERG; 7IM