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Market Round Up 2 May 2017

02 May 2017

Jack Turner, Research Analyst

This week, we look ahead to the second round of the French presidential election on Sunday 7 May and review markets and our portfolio actions following the first round of the same election late last month. We also look at headline data from the UK, Eurozone and the US.

FRANCE DECIDES

Kei Info

On 7 May, the French electorate goes in for the second round of voting for their next president. And, while the electorate has yet to decide, the markets have already chosen and are backing Macron and continuity. Le Pen, however, continues to attack Macron, and while the polls are unlikely to be wrong – particularly given their accuracy in the first round – voter apathy and a low turn out may play into Le Pen’s hands. Her supporters are far more convinced of her merits rather than Macron’s supporters of his: 90% of those who state that they will vote Le Pen will, versus 65% in Macron’s case. The election also falls in the middle of a bank holiday weekend.


NEWS

UK SERVICES SLOW

The UK economy grew by 0.3% for Q1 2017 according to the Office for National Statistics, with the slowdown due mainly to the service sector, which sank to 0.3% growth versus 0.8% in Q4 2016. Output in the construction sector also dragged on GDP after expanding by 0.2% Q1 versus 1% growth in Q4 2016, while agriculture growth eased to 0.3% again down from 1% growth in Q4 2016. While industrial production expanded by 0.3% over the period and manufacturing increasing by 0.5% thanks to a jump in motor vehicle output, the figures were not enough to offset the services sector which represents 78% of the UK economy.

 

EUROPEAN CONFIDENCE HIGHER

The Eurozone’s economic confidence jumped to its highest level in almost a decade this month as the index of executive and consumer sentiment published by the European Commission surged to 109.6 in April from a revised 108 in March. That number is the strongest since August 2007 and was above the consensus estimate of 108.2. The report showed improvements across all sectors. In manufacturing, managers were more upbeat about the current level of order books, while a pick-up in consumer confidence was fuelled by greater optimism on jobs, the economy and household finances. Gauges for employment prospects saw significant increases in construction, retail trade, industry and services.

 

WEAKER US NUMBERS

The US economy grew at its slowest rate for three years in Q1 2017, with consumer spending faltering and businesses investing less on inventories. The economy grew 0.7% in Q1 on an annualised basis versus 2.1% In Q4. Predictions had been higher for the number, but economists revised down their consensus 1.2% once details of the goods trade deficit and inventory statistics were published on Thursday 27 April.


PORTFOLIO ACTIONS
The voters’ decision in the first round of the French presidential election that saw Macron take pole position over Le Pen for the first time in the entire race led to European markets moving higher. Macron represents much less uncertainty for Europe than his far right opponent and is much more pro-business. So with less political risk on the horizon, markets should now benefit from the good macro economic backdrop and the stronger earnings being posted by companies, and move higher still than they did last week.

As a result, we added to the Euro Stoxx 50 Index positions and increased our Euros exposure as part of our currency allocation. Using our balanced profile as an example, we added 3% to the equity markets and 4% to Euros.


THREE ANNOUNCEMENTS DUE THIS WEEK
04 May – UK Purchasing Managers’ index   //   04 May Eurozone Retail Sales   //   05 May – US Non Farm Payrolls

SOURCES: IFOP-FIDUCIAL, 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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