Monthly Investment Update May 2016
The FTSE 100 index of leading UK company shares finished April at 6,241.90, up by 67 points or 1.09% during the month.
Strong Eurozone growth figures at the end of April failed to excite investors, with worries about the US economy continuing to erode investor confidence.
The US economy has expanded at its slowest pace in two years and consumer spending across the pond rose by just 0.1% in March, despite a rise in personal income of 0.4%.
Fears about the strength of the global economy were further highlighted with the decision by the US Federal Reserve to hold interest rates again. In Japan, the Bank of Japan held its programme of quantitative easing, despite its own weakening economy.
In Australia, the Reserve Bank of Australia has cut its benchmark interest rate to a historic low of 1.75% from 2%, as a result of lower than expected inflationary pressures. The rate cut was announced shortly before the federal budget in Australia, which is expected to contain small tax cuts and increased public expenditure.
Overall, share prices in London were positive during April, although fell by 1.3% on the last day of trading, ahead of the long Bank Holiday weekend.
Global banking giant HSBC experienced a 14% fall in profits during the first quarter of the year, blaming ‘extreme levels of volatility’ in the financial markets. Their profits before tax fell to $6.1bn, down from $7.1bn during the same reporting period the previous year. This fall in profits was less than expected by analysts, who had predicted a rough patch for the bank.
Activity in the UK’s manufacturing industry has fallen to a three year low in April. According to the Markit/CIPS manufacturing Purchasing Managers’ Index, output fell to an index reading of 49.2 last month. An index reading below 50 indicates a fall in manufacturing output.
It is the first time since March 2013 that activity in the UK manufacturing industry has fallen and the fall is thought to be caused by uncertainty ahead of the EU Referendum next month.
UK price inflation rose to 0.5% for the year to March, as measured by the Consumer Prices Index (CPI), up from 0.3% in February. This is the highest level of CPI price inflation in more than a year, although remains well below the government target of 2%.
The rise in inflation was the result of a smaller decline in airfares and other transport prices than a year earlier, as well as higher prices for clothing, footwear, and at restaurants and hotels.
Broader pressures on price inflation in the UK remain low, with factory gate prices falling by 0.9% in the year to March and raw materials costs falling by 6.5%, according to the Office for National Statistics.
The average price of a UK home rose by 0.2% in April, according to the latest Nationwide House Price Index. It means that the average price paid for a property during April rose to a new record of £202,436, breaking through the £200,000 barrier for the first time during the previous month.
As a result of the small average price increase in April, the year on year rate of increase down to 4.9%, from 5.7% in March. Other measures of house prices have been much stronger than the Nationwide index during the past year, suggesting their methodology for sampling mortgage offers might not be as representative as others.
Oil prices started May in a strong position as the US dollar fell to an 18 month low against the yen, increasing demand for oil which is priced in dollars.
Benchmark Brent crude futures were trading at $46.29 per barrel at the start of the month, but gains remain modest after rising Middle East oil output raised fresh concerns of a global supply overhang.
The benchmark 10 year UK Gilt yield stands at 1.58%, rising during April.
£1 buys $1.47150 or €1.26930. The Forex Gold Index is $1,285.65/oz and the Silver Index is $17.85/oz.