Monthly Investment Update – September 2015
The FTSE 100 index of leading UK companies finished August with its worst monthly decline since May 2012, following fears about slowing economic growth in China hit investor sentiment across global markets.
The index fell by 6.7% during August after China implemented a surprise currency devaluation and spooked global stock markets. The index closed at 6,247.90 points, down 448.38 points during the month.
There were signs of improvement towards the end of August, with Chinese stock markets posting two positive days of returns, rising by 4.9% on the final day of trading last month.
Data published in China at the start of September confirmed an economic slowdown. The official Manufacturing Purchasing Managers’ Index (PMI) fell to 49.7 from 50 in July. An index reading below 50 indicates contraction in activity.
Chinese authorities are also taking steps to crackdown on individuals and organisations spreading ‘market rumours’; 197 people have been ‘punished’ for allegedly spreading untrue information about the recent stock market crash and fatal explosions in Tianjin.
Unemployment in the eurozone fell to 10.9% in July. This is the first time the unemployment figure has fallen below 11% since February 2012. Those out of work in the 19-nation Eurozone fell from 11.1% in June, but youth unemployment remains high at 21.9%. according to EU statistics agency Eurostat.
In contrast, unemployment in the UK rose for a second successive quarter in new data published in August, suggesting that the rise in jobs growth could be levelling off. Unemployment in Britain rose to 5.6% in the three months to June, up from 5.5% in the previous quarter, according to the Office for National Statistics (ONS). This was the first quarterly rise since the beginning of 2013.
Economic growth in the UK was unrevised in the second quarter, remaining at the initial estimate of 0.7%. This compares to GDP growth of 0.4% in the first quarter and was led by the service sector. UK GDP grew 2.6% between the second quarter this year and the second quarter last year, growing by 3% in 2014 compared to 2013, in figures which were also unrevised.
Price inflation in the UK returned to positive territory in July, with the Consumer Prices Index (CPI) measure of inflation rising to 0.1% from 0%, or ‘noflation’, in June. The main reason for this rise was a smaller fall in the price of clothing, according to the Office for National Statistics. The Retail Prices Index (RPI) measure of price inflation remained unchanged in July at 1%. This is the inflation figure that will be used to calculate regulated rail fare increases next year, so an important figure for commuters to consider.
Interest rates are still at 0.5%, with the Bank of England reporting their Monetary Policy Committee decision at the same time as minutes from that meeting, and their Quarterly Inflation Report, on the same day; the so-called ‘Super Thursday’. Only one member of the nine person Monetary Policy Committee voted for a rate rise in August, suggesting we are still quite some time from a rate rise.
The Quarterly Inflation Report downgraded the near-term forecast for price inflation, due to a fall in global oil prices and because business employment growth appears to be fading. According to Andrew Goodwin of consultancy Oxford Economics, “The chances of a 2015 rate rise, which in our opinion were already low, have receded further.”
UK house prices rose by 3.2% in the year to August, according to the latest Nationwide House Price Index. This was the weakest house price growth since June 2013, with average prices rising by just 0.3% in the month. This compares with a 0.4% monthly rise in July. It means the average house value in August was £195,279. Nationwide said that one reason for this weak growth was rapidly rising house price growth this time last year.
The benchmark 10 year UK Gilt yield closed at the end of August at 1.962%, rising during the month, but still lower than at the start of July as investors seek safe haven investments during a period of equity market volatility.
£1 buys $1.53450 or €1.36190. The Forex Gold Index is $1,135.00/oz and the Silver Index is $14.44/oz. Brent Crude Oil Futures are currently trading at $52.57 a barrel.