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Market round up 31 July 2017

31 Jul 2017

Jack Turner, Research Analyst

This week we look at Trump’s popularity, UK economic growth, EU unemployment, Federal Reserve actions and provide an update on 7IM’s gold holdings.


 Key Info

In early March, Trump’s popularity was at its peak with consensus polls putting his approval rating around 45%. The President’s about to mark his 200th day in office, and it’s slumped - even his core supporters may be changing their minds. One in eight who voted for him now want to switch their vote. His response has been to focus on his strongest political base. So while his sudden move to ban LGBTQ military personnel may surprise many, but less so when you consider Trump’s Christian and conservative base. At the heart of the malcontent could be the Obamacare repeal discussion. Even among Republicans, there's only very narrow support for it: 35% are in favour, 34% opposed it, and 31% are not sure.

With business investment not coming through due to the uncertainty, and exports failing to pick up as much as hoped given Sterling’s weakness, much of our GDP performance is reliant on household spending. Immediately after the vote to leave, the Bank of England’s interest rate decision seemed to prompt spending. But with household incomes now being squeezed as inflation kicks in and wage growth doesn’t, forecast expectations are coming in at lower levels. The question in politicians’ minds will be what that means for the Brexit negotiations: the Conservative Cabinet splits and Labour Party divisions both seem to highlight the lack of agreement on the way forward. Not good news for the economy.

Unemployment levels in the Eurozone came in at 9.1% in June, versus 9.2% in May and 10.1% in June 2016 according to Eurostat. For the wider European community (28 markets), unemployment was recorded at 7.7%. Germany stood at 3.8% (4.2%, June 2016), France at 9.6% (1.0%, June 2016), Italy was at 11.1% (11.7, June 2016) and Spain at 17.1% (19.9%, June 2016). Eurostat also reported that the low unemployment is not leading through to wage growth and inflation. Core inflation rose to 1.2% from 1.1% in June. but well below the European Central Bank's target of close to, but below, 2%.

The Federal Reserve (Fed) kept interest rates unchanged between the 1 to 1.25% band at its 26 July meeting, but clearly signalled that it was ready to start unwinding its balance sheet “relatively soon” and perhaps even as soon as its next meeting in September. The Fed chair, Janet Yellen, has spent the last year preparing the ground for the moment when the Fed finally puts its quantitative easing programme into reverse. It wants to begin the gradual withdrawal of the trillions of US Dollars of stimulus in as predictable a manner as is possible so as to hope to avoid creating turmoil in the markets.

Central banks are coming to the market with very innocuous sounding statements that are then interpreted by markets. The gist of these comments is that the rate cycle is beginning to ‘normalise’, but that they remain ‘behind the curve’ to ensure that they don’t discourage economic activity. While the two steps forward, one step back approach may make for a smooth transition away from the stimulus, markets may still react badly if the progress is not carefully managed. So recent comments in the US about the Federal Reserve Chair’s continued tenure could cause upset. As a risk mitigant, 7IM holds gold – positions that are up 4% since the start of July, benefiting from a weak US Dollar, lower bond yields and the potential for geopolitical risk to spike. We will continue to hold it given it’s an asset that has historically performed well in circumstances such as these.

3 Aug Eurozone Retail Sales // 3 Aug Bank of England Interest Rate Decision // 4 Aug US Unemployment Rate


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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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