This week’s updates focus on next week’s Dutch general election, UK data, Eurozone inflation and the US Federal Reserve. It also includes a portfolio update. There are no changes ahead of the pending Tactical Asset Allocation discussion.
WILDERS POPULARITY FALLS
Geert Wilders’ Freedom Party (PVV) has led in the Dutch general election polls for long periods since 2014. Now, with less 10 days to go to the vote, the polls show his popularity appears to be waning. Instead, it looks like Prime Minister Rutte’s Liberals’ party (VVD) may have the edge and become the biggest party i.e. the one that leads collation discussions. Meanwhile, the Christian Democratic Appeal (CDA) party has overtaken the current coalition partner, the Labour party (PdvA) in terms of the number of seats it’s expected to win. It’s also starting to get to the numbers Wilders may see. This could leave Wilders out in the cold when talks to form a government start.
MORE UK DATA SHOWS GROWTH SLOWING
The Markit / CIPS purchasing managers' index (PMI) for UK services fell to 53.3 for February, down from 54.5 in January. However, the figure – although standing at a five month low – remains above the 50 threshold that distinguishes growth from contraction. The sector, which makes up over 75% of the UK economy, is facing headwinds from inflation that came in at 1.8% for January. The figures follow on from last week’s Office for National Statistics’ update that saw UK GDP growth for 2016 marked down to 1.8% from 2.0%.
EUROZONE INFLATION ABOVE TARGET
Inflation in the Eurozone has hit 2% in February, according to Eurostat, up from a rate of 1.8% the month before and above the European Central Bank's (ECB) target rate for the first time in four years. That target is just below 2%. However, given the increase in inflation is largely due to rising energy prices, expectations are that the ECB will look through the headline numbers during this week’s meeting and not alter its current stimulus programme. This is because core inflation – which strips out the volatile energy and food prices – remained constant at 0.9%.
US RATE RISE PROBABILITY SPIKES
The probability of a rate rise by the Federal Reserve spiked to nearly 100% as chair Janet Yellen gave a speech in Chicago on Friday to the Executives Club. That talk provided the strongest signal that she possibly could give that a rate rise was likely in March without pre-committing. Payroll date will still be released prior the Open Market Committee discussion and may still delay a decision. She added that she was confident that the "gradual" increase in rates was likely to be "appropriate“, which reaffirmed expectations that the Fed is likely to raise rates three times in 2017.
Markets appear to be hanging off every word and whim of Donald Trump – however they’re communicated. There was a general consensus that his speech to Congress represented a pivotal moment that saw him being much more presidential. Whether markets read this as him taking leadership of Congress so he can push through tax policies or the President stepping away from protectionist measures is hard to tell. The moment also appeared not to be tarnished by ongoing allegations about links to Russia.
Either way equity markets across the world saw a significant boost last week that helped our European equities overweight (up 2.25% last week), as well as our allocations to US equities (+0.6%) and US Financials (+1.5%).
THREE ANNOUNCEMENTS DUE THIS WEEK
9 March – ECB Interest Rate Decision // 10 March – US Unemployment Rate // 10 March – UK Balance of Trade
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SOURCES: PEIL, BLOOMBERG, 7IM