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Market round up 22 May 2017

22 May 2017

Jack Turner, Research Analyst

This week, we cover off the latest UK election polls, UK wages, Eurozone inflation and US retail sales. Our portfolio update covers our more adventurous risk profiles following last week’s update that highlight positions taken on behalf of our most risk adverse clients.

LAST DAY TO REGISTER TO VOTE

Last day to register

The launch of the party manifestos last week led to a surge in Labour’s polling numbers, lowering the Conservatives’ lead from around an average of 20 points to between 9 and 13. Analysts are urging caution though given the latest polls come from companies that estimate a good turn-out among Labour voters –not always the case. The reported shift is being assigned to Tory plans to fund social care using recipients’ houses, which half of those polled oppose. Labour are planning to fund their policies through two new tax rates on salaries over £80,000 and £123,000, which only a quarter oppose and which are backed by six out of 10 of those asked.


NEWS
UK WAGE SQUEEZE CONFIRMED
The Office for National Statistics corroborated the report by the Bank of England that wages are now lagging inflation for the first time since mid-2014. Average weekly earnings (excluding bonuses) increased by 2.1% in the three months to March, while inflation rose by 2.3% in the year to March 2017. This was despite unemployment falling by a further 53,000 to 1.54 million in the three months to March –a rate of 4.6% that is the lowest in 42 years. Meanwhile, the rate of those employed, the proportion of 16 to 64 year olds in work, was 74.8%, its highest since records began in 1971. Productivity levels were blamed for the low pay rises given we are at the same level of output per person as in 2008.

EUROZONE INFLATION HITS HIGH
Inflation in the Eurozone region jumped to 1.9%, up from 1.5% in March, but just below February's four year high of 2%. The European Central Bank’s aim for inflation is below, but close to, 2%. The rise was blamed on high energy prices although core inflation – a measure closely watched by the ECB and which strips out energy and unprocessed food prices – rose to 1.2% in April from 0.8% in March. The figure is likely to be largely ignored by the bloc’s central bank given that it will be influenced by distortions resulting from the Easter holiday which this year was in mid-April rather than late March as in 2016.

US RETAIL SALES SOLID
US retail sales rose by 4.5% in April 2017 versus April 2016 with online shopping booming, climbing 11.9% year-on-year. This compares with sales at US department stores in April falling 3.7% year-on-year, in line with a two-year run of annual falls. Month-on-month, the increase was 0.4% versus an expected 0.6%, but up against the two previous months that saw sluggish growth. The increase suggests that US consumers may encourage still faster growth in the April-June quarter.


PORTFOLIO ACTIONS
7IM added two third party funds that invest in Frontier markets for its most adventurous funds. The Adventurous multi manager fund sees an addition of a Charlemagne Capital fund, while the Active Allocated Passive Adventurous Fund now invests in a T Rowe Price fund. Investing after a two and a half year absence, the team at 7IM sold out of Frontiers due to concerns about the sector’s high exposure to the oil price, which proved a good exit point. Valuations in Frontier Markets now appear to be more compelling than their developed market counterparts, with the persistent price inefficiencies providing good opportunities for investors. The investments gain exposure to uncorrelated, high growth economies that are off Trump’s radar and have less exposure to potential US protectionism than markets such as China, which has already been singled out.


THREE ANNOUNCEMENTS DUE THIS WEEK
24 May -US Federal Reserve Minutes // 24 May -Germany Consumer Confidence // 25 May -UK GDP Growth 2nd Estimate

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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.
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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