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Market round up 6 June 2017

06 Jun 2017

Jack Turner, Research Analyst

This week, we report on the latest polls ahead of Thursday UK general election, provide an update on economic data in the UK, Europe and the US and provide an update of recent portfolio actions.

TOO CLOSE TO CALL?

Too close to call?

There are big gaps between YouGov’s shock statistical analysis of a hung parliament and its latest poll putting the Tory lead at 4 points over Labour. The ICM poll has the difference at 11 points. While all the polling companies do have very similar results to each other from their actual surveys, these are then weighted based on likely voter turn out. YouGov, for example, was predicting that over 80% of millennials will be voting whereas ICM sees the number more along the lines of the previous election at 45%. All the pollsters warn though that despite sample sizes of some 50,000, once results are extrapolated per constituency, it often becomes too close to call.


NEWS
SOME UK MOMENTUM REGAINED

While solid employment growth continued to be posted in May, firms remain cautious about the outlook according to the latest IHS Markit/ CIPS Purchasing Managers Indexes (PMI). On the manufacturing front, growth remains solid with the index recording 56.7 for May, while construction came in at 56.0 due to a surge in new house building. However, these numbers are small versus the services sector –manufacturing, for example, is just 10% of the economy. And while the Services PMI showed a drop in May to 53.8 from 55.8 in April, the number is above the all-important mark of 50 denoting expansion.

EUROZONE ECONOMIC GROWTH STEADIES
The Eurozone’s economic growth rate continued to run at its quickest pace in six years throughout last month. The Eurozone PMI Composite Output Index posted 56.8, which was unchanged from the earlier flash estimate and April’s final reading. And that growth is broad-based: Germany and France expanded at their fastest rates in six years, while other data is showing that peripheral economies are also doing better. So while Greece’s economy remains volatile, Q1 GDP growth was recorded at 0.4%. Portugal posted a solid 1% growth in Q1 GDP.

US NEW JOBS DATA DISAPPOINTS
The US economy added another 138,000 new jobs in May, fewer than the 180,000 expected, but the figure also marks the 80thconsecutive month in which the economy has seen the number of jobs grow and is three times the rate necessary to absorb growth in the labour force. Unemployment, meanwhile, hit a 16-year low as it fell to 4.3%. Both these numbers would typically suggest that the Federal Reserve would be on course to raise rates at next week’s meeting. However, political turmoil stemming from the White House may lead to rates being held until debt ceiling discussions end.


PORTFOLIO ACTIONS
7IM added to existing alternatives investments within the Asset Allocated Passive (AAP) funds. In the Moderately Cautious Fund and Balanced Fund we added 1% of the total value of the portfolio to the AQR Managed Futures Fund. The Balanced Fund also saw a further 1% invested in the CS Risk Premia, while the Moderately Cautious Fund saw an additional 2% invested. In addition, the Moderately Cautious Fund also saw 1% added to the BNP Commodity Carry Note. The allocations come as the team continues to seek to diversify portfolios away from bonds, and have turned to alternatives given bond investments are at historically high valuations and no longer offer the ongoing income that they once did. We believe alternatives offer up options that are unlikely to travel in the same direction or are neutral to the reaction of mainstream financial markets to events.


THREE ANNOUNCEMENTS DUE THIS WEEK
8 June – UK General Election // 8 June – ECB Interest Rate Decisions // 9 June – UK Balance of Trade

* SNP ** REST OF FIELD
SOURCES: BBC, 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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