Monthly Investment Update April 2016
The FTSE 100 index of leading UK company shares finished March at 6,174.90, up by 77.81 points or 1.28% during the month.
UK shares marginally outperformed their European rivals during a weak first quarter. The index started the year in negative territory, falling by more than 10% by the middle of February. A falling oil price and concerns about weak economic growth in China both troubled investors.
A strong rebound in commodity prices since mid-February has subsequently helped to improve investor sentiment. This was in part supported by US dollar weakness after the latest Fed comments on interest rate direction.
There is cautious optimism about the US economy, with the latest jobs figures at the start of April showing an extra 215,000 new jobs added in March. This was slightly behind the 242,000 new jobs created in February, with the unemployment rate rising slightly from 4.9% to 5%.
In the UK, the current account deficit (imports exceeding exports) widened to a record high in the last quarter of 2015. The deficit rose to £32.7bn, according to the Office for National Statistics. This represents around 7% of GDP in the final quarter.
The ONS also published revised economic growth figures for the UK, with GDP of 2.3% for 2015. This represents a small upwards revision from their earlier estimate of 2.2% for the year. The economic growth upgrade was the result of stronger performance from the services sector and a smaller than expected contraction in industrial production.
The latest Nationwide house price index shows average house prices have risen above £200,000 for the first time. The average price of a UK home was £200,251 according to Nationwide, with house price inflation up by 5.7% in the year to March. This was a rise in house price inflation from 4.8% in February and is the highest rate in over a year.
Nationwide also highlighted the scale of the North-South divide in house prices, with the average home in the North of England now worth £163,000 less than one in the South. House price inflation in the South of England was 9.9% year-on-year during the first quarter, compared to just 1.8% for average house prices in the North of England.
UK price inflation remained unchanged at 0.3% in March, as measured by the Consumer Prices Index. The price inflation measure for the year to February was kept at this level with cheaper second hand cars offsetting higher food prices. CPI inflation remains well below the Bank of England target of 2% and a small increase had been expected.
Inflation expectations are still at their highest level in a year, according to the latest YouGov/Citi survey published at the end of March. Year-ahead price inflation expectations stayed at 1.5%, the same level as recorded in February and up from 1.2% at the start of the year. Inflation expectations for the next five to ten years are 2.8%, down from 2.9% in February.
Interest rates in the UK remain on hold at 0.5%, with no short-term expectations of a rate rise. Rates have remained at this historic low for over seven years, since the onset of the global financial crisis.
For investors who thought the European sovereign debt crisis was old news, Greece will resume talks with its EU and IMF lenders this week in an attempt to conclude a key bailout review. This is the third attempt since February to conclude the debt review, which is designed to create the foundation for negotiations over debt relief. Euro zone finance ministers are due to review the progress of Greek reforms later this month.
The benchmark 10 year UK Gilt yield stands at 1.409%, rising slightly during March.
£1 buys $1.42260 or €1.24910. The Forex Gold Index is $1,213.60/oz and the Silver Index is $15.38/oz. Brent Crude Oil Futures are currently trading at $38.68 a barrel.