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Market round up 19 June 2017

19 Jun 2017

Jack Turner, Research Analyst

This week we cover the French election and En Marche, weakening retail sales, trade surplus falls in the Eurozone and Fed hikes rates

FRANCE DECIDES*

France decides 

French voters must be relieved that the last three months, which have seen them in polling booths four times, are over. They now have a new president and legislative assembly in place. Emmanuel Macron’s party, EnMarche, claimed a historic majority on Sunday night. As votes were still being counted they appeared on track to win about 350 of the 577 National Assembly seats -the biggest majority in 15 years. Macron will now have the power to push through the much needed economic reforms that he built his campaign on. The turnout of 44% was the lowest ever and serves as a reminder that almost half of the electorate, during the first round of ballots in April, voted for far right candidates.


NEWS
Retail sales weaken

The UK economy continued to show signs of weakness as retail sales volumes fell 1.2% month to month, below the consensus of -0.8%. The year-on-year growth rate decreased to 0.9%, from 4% in April, well below the consensus of 1.6%. The decline in sales was broad based, with food sales falling 0.9% and non food sales declining by 2.3%. The disappointing figures gave more weight to the argument that Brexit is starting to hurt consumers as real incomes are falling at the fastest rate in three years, caused by a mixture of rising inflation and sluggish growth.

Trade surplus falls in Eurozone
The strong momentum seen in the Eurozone trade data this year weakened as the seasonally adjusted trade surplus fell to €19.6bn in April, from €22.2bn in March. The disappointing headline was mainly due to a 2.2% month-on-month dip in exports which overwhelmed the 0.5% decline in imports. The European trade surplus remains healthy and will remain in place throughout 2017, however the slowdown in the UK and the continued strength of the Euro is beginning to hurt.

Fed hikes rates
The Fed lived up to expectations as they increased interest rates by 25bps and continue to forecast a total of three rate rises for this year. It would have been a shock to the market if the Fed hadn’t continued their hiking cycles as the probability of a rise stood at over 90%. However, after weak inflation data earlier in the week some doubters appeared. The Fed’s statement referred to the labour market, which “continued to strengthen” and argued that continued gradual rate rises are consistent with moderate growth and tightening in the labour market.


PORTFOLIO ACTIONS
The team is nearing the end of the quarterly Tactical Asset Allocation (TAA) process and will soon be in a position to implement their investment decisions. The TAA is a periodic deep dive on the existing positions within the portfolios and any potential investments accessible within the risk boundaries of each fund. The team develop various scenarios which they believe the world could be in over the next 3 –12 months and then forecast returns for each major asset class. They then invite an external committee of economists and political consultants to assign probabilities to each scenario. The returns forecasted by the team are then overlaid on the scenario probabilities to produce expected returns for each asset class. The team then use these outcomes to drive their investment decisions.


THREE ANNOUNCEMENTS DUE THIS WEEK

21 June – US Existing Home Sales // 22 June – Eurozone Consumer Confidence // 22 June – UK Industrial Trends Orders

* Projected results as at 19.06.2017 ^ Socialist and Far Right * Rest of field (2%)
SOURCES: PANTHEON MACRO, SOCIETE GENERALE, BLOOMBERG, 7IM


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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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