Monthly Investment Update November 2015
European stocks fell on the final day of trading in October but overall recorded a strong monthly gain. The CAC index in Paris rose by close to 10% and the German DAX was up by 12%.
Markets rose on positive investor expectations that an interest rate rise in the US would be delayed. This positive sentiment lasted until late in October when the US Federal Reserve hinted that rates could rise in December.
Global stock markets remain nervous about slowing economic output in China. The latest figures from the Chinese government show their manufacturing sector has contracted for a third consecutive month. The Purchasing Managers’ Index (PMI) in China had a reading of 49.8 for October, unchanged from September. An index reading below 50 shows that factory activity contracted.
Price inflation in the Eurozone has returned to zero in October, after being reported at -0.1% in the year to September. The Eurostat estimates suggested a slight increase in the price of food, alcohol and tobacco. These inflation figures are however a ‘flash’ estimate which could be revised. We still expect the European Central Bank to introduce further monetary stimulus in order to hold off the threat of deflation.
Inflation in the UK fell below zero again in October, for the second time this year. The Consumer Prices Index (CPI) measure of price inflation fell to -0.1% for the year to September, down from zero in August. Economists had forecast the inflation rate would remain at zero.
The public in Britain expect price inflation to fall back slightly over the next twelve months, according to a recent survey published by YouGov/Citi. Year-ahead inflation expectations slipped to 1.4% in October from 1.5% in September. These forecasts have now been below the Bank of England’s 2% inflation target for 13 months, which is the longest period reported in over a decade.
Interest rates in the UK remain on hold at 0.5% with the current inflation figures and inflation expectations suggesting we should not expect to see a short-term interest rate rise from the Bank of England Monetary Policy Committee.
The latest economic growth figures in the UK show it slowed in the third quarter due to weak construction and manufacturing output. Gross Domestic Product (GDP) grew by 0.5% in the three months to September according to the Office for National Statistics, down from 0.7% in the second quarter. The ONS estimated GDP to be 2.3% higher than a year earlier and 6.4% higher than its pre-recession peak in the first quarter of 2008.
Average house prices in England and Wales rose by 0.6% in October to an average of £196,807, according to Nationwide. The annual rate of house price growth grew to 3.9% after falling to a two-year low of 3.2% in August.
New research from UBS has found that London now has the dubious honour of being the world’s largest housing market bubble. Its Global Real Estate Bubble Index gave London the highest reading of 1.88, with any level over 1.5 being at risk of a bubble. Hong Kong came in second place with a score of 1.67. UBS said that inflation-adjusted, house prices in London have risen by an average of 40% since the start of 2013 and are now 6% higher than their 2007 peak.
The benchmark 10 year UK Gilt yield rose to 1.92% at the end of October, up from 1.78% at the start of the month as investors cycled back into equity markets.
£1 buys $1.54300 or €1.40180. The Forex Gold Index is $1,142.35/oz and the Silver Index is $15.63/oz. Brent Crude Oil Futures are currently trading at $49.52 a barrel.