Monthly Investment Update June 2016
The FTSE 100 index of leading UK company shares finished May at 6,230.79, down by 11.11 points or 0.18% during the month.
Stocks fell slightly at the end of the month in anticipation of a raft of economic announcements during the week, including the latest jobs report in the US and a meeting of the European Central Bank.
Investors are expecting a rate hike in the US after the Fed signalled this was a possibility for its June meeting. This expectation combined with the EU Referendum in the UK suggests global markets could experience a volatile month.
Consumer spending in the US reached a seven year high in April, rising by 1% during the month, despite a fall in consumer confidence in May. Consumer spending is an important economic indicator as it represents around two-thirds of US economic activity.
House price growth in the UK slowed down in May, rising by just 0.2% in the month. According to the latest survey by Halifax, the annual rate of house price growth is now 4.7% in May, down from 4.9% in April. As a result, the average price of a home in the UK has risen to £204,368.
In Japan, Prime Minister Shinzo Abe has delayed until 2019 his plans to raise the rate of sales tax from 8% to 10%. This is the latest delay to the increase in sales tax, which was originally scheduled to rise to 10% in October 2015, before being delayed to April 2017 and now kicked even further into the long grass.
The private sector in Britain grew steadily in May, but uncertainty around the outcome of the EU Referendum this month could result in a slowdown. The latest growth indicator from the Confederation of British Industry saw a balance of 11% of firms reporting a rise in production compared to 10% the previous month. Firms expect growth to continue in the next quarter.
The UK manufacturing sector maintained its generally lacklustre start to 2016, reporting an index reading of 50.1 in May. This was up from 49.4 in April, according to the latest seasonally adjusted Markit/CIPS Purchasing Managers’ Index (PMI). An index reading of 50 is neutral.
UK price inflation fell in April for the first time since September, with the Consumer Prices Index (CPI) measure of inflation at 0.3% for the year. The fall was largely the result of cheaper air fares following the Easter holidays. The Bank of England expects inflation to rise in the second half of the year.
The Retail Prices Index (RPI) measure of price inflation also fell in April, to 1.3% from 1.6% in March. Core inflation, a measure of price inflation which strips out more volatile price changes from items including energy costs and food, fall to 1.2% for the year.
Price inflation expectations fell in May, according to the monthly Citi/YouGov survey. Inflation expectations for the year ahead fell to 1.5% in May, down from 1.6% in April. Expectations for inflation over the next 5 to 10 years remained steady at 2.8%.
The Bank of England has kept interest rates on hold at 0.5% in May. Jan Vlieghe, one of the nine members of the Monetary Policy Committee, has warned that interest rates could be cut as a result of continued economic weakness. This rate cut could come regardless of the outcome of the EU Referendum this month.
In a speech at the London Business School, Vlieghe said the UK economy could require “additional monetary stimulus” if it does not rebound following a vote to remain in the EU on 23rd June.
Oil prices are hovering around $50 a barrel, with a slight fall in prices at the start of June. Prices slipped below the psychological level of $50 on expectations of high and rising exports from the Middle East, with continued concerns about China’s economy and its impact on demand.
The benchmark 10 year UK Gilt yield stands at 1.442%, falling during May.
£1 buys $1.44470 or €1.29430. The Forex Gold Index is $1,212.10/oz and the Silver Index is $16.06/oz.