Monthly Investment Update: August 2015
European stock markets finished the month higher on positive economic and company earnings data.
Investors are currently concerned about economic events in Greece and China, and suggestions the US Federal Reserve might implement an interest rate rise soon. However, corporate results are helping improve investor sentiment and support market fundamentals.
In Europe, the latest economic data in the Eurozone at the end of July was underwhelming. Inflation in the Eurozone remained the same, the jobless rate was also flat and the European economy appears to be maintaining only modest levels of growth.
Greek stock markets reopened at the start of August, resulting in substantial falls in the Athex, the main stock market index in Athens. This fell by 22.87% in early trading, with the four largest banks in Greece down by around 30%.
The Greek economy is in really bad shape after weeks of capital controls and bank closures. Markit’s purchasing managers’ index (PMI) for manufacturing in Greece fell to 30.2 points, which was the lowest reading since records began in 1999. A PMI reading of 50 denotes growth. Manufacturing makes up around a tenth of the Greek economy.
Chinese stocks have continued to fall, with disappointing economic data adding to concerns the economy in China is slowing down. Factory activity in China has fallen to its lowest level in two years, recording the fifth consecutive month of contraction in the sector.
In sharp contrast, UK manufacturing activity has picked up in July, after reaching a low of more than two years in June. The index rose to 51.9 in July, from 51.4 in June. It remains below the average of 54.3 for the sector which has been held since April 2013.
After a sluggish first quarter, the British economy has started motoring ahead with GDP growing by 0.7% in the second quarter. As a result, Britain’s economic output per person has finally reached the level achieved before the onset of the global financial crisis.
According to Graham Spooner, investment research analyst at The Share Centre, services and production sectors led the way providing the bulk of the growth in the last quarter at 0.7% and 1% respectively. In contrast, the agriculture sector saw output fall by 0.7% and in the construction sector, growth was relatively flat.
Eurozone inflation stayed flat last month at 0.2%, well behind the European Central Bank target of just under 2%. The latest inflation figures in the UK show a return to ‘noflation’, with inflation as measured by the Consumer Prices Index (CPI) at zero. It was down from 0.1% in the previous month.
Interest rates in the UK remain at 0.5%, with the Bank of England set to change their interest rate reporting in August. For the first time, the interest rate decision will be announced alongside minutes from the Monetary Policy Committee meeting, in attempt to change the usual drip feed of data from Threadneedle Street.
This month the interest rate decision will also coincide with a quarterly inflation forecast from the Bank of England, which could feature more clues about the likely direction and timing of interest rate changes in the near future.
House price growth slowed again in June, according to the latest Nationwide House Price Index. UK house prices fell by 0.2% in June, with annual house price growth down from 4.6% to 3.3%. The average house price is now £195,055. This gradual downwards trend has been evident since mid-2014, although London continues to experience house price growth higher than the national average.
The benchmark 10 year UK Gilt yield currently stands at 1.91%, falling from 2.08% at the start of July as investors seek safe havens during a period of equity market volatility. £1 buys $1.55870 or €1.42120. The Forex Gold Index is $1,098.40/oz and the Silver Index is $14.56/oz. Brent Crude Oil Futures are currently trading at $50.95 a barrel, falling sharply during July.