In our latest monthly investment update for September 2017, we look at how the investment markets, global economy and commodity prices are performing.
The FTSE 100 index of leading UK company shares finished August largely flat at 7,430.62 points, a modest increase of 58.62 points or 0.8% during the month.
The 2017 second quarter economic growth of 0.3% in the UK, reported by the Office for National Statistics (ONS) last month, is likely to be confirmed in early September.
However, a model created by economists at UBS, Switzerland’s largest bank, that removes the volatility in survey data shows that growth has “softened substantially since the beginning of the year” and is headed “close to zero in the near future”.
Brexit negotiations have been largely a standstill thus far not doing much to relieve the uncertainty surrounding Brexit. Combined with the gloomy prospects of the UK economy consumer confidence is still negative for the UK economy with GfK’s widely watched survey for August at minus 10, although this represents a small increase from minus 12 in July.
In the Eurozone inflation during August rose to a higher than expected 1.5% owing to higher cost of energy, processed food, alcohol and tobacco.
In the UK Consumer Price Inflation (CPI) inflation rate held steady at 2.6% in July, the same as for June. A key member of the Monetary Policy Committee (MPC), Michael Saunders, has called for a modest interest rate rise in order to curb inflation stating that it would “help ensure a sustainable return of inflation to target over time”.
Earlier in the month the MPC voted 6-2 to keep interest rates at 0.25%.
Pound Sterling has been weak against the Euro in August, falling to its lowest point since October 2009 of €1.07467. The Euro has strengthened to an 18-month high against the US Dollar as the prospect of a US interest rate rise recedes.
The IHS Markit/CIPS UK manufacturing Purchasing Managers’ Index (PMI) shows that UK Manufacturing had a good month with the PMI at 56.9, up from 55.1 in July; it’s second highest level in over three years. Production rose at the steepest pace in seven months, underpinned by faster intakes of new growth of output, total new orders, new export business and employment was recorded across the consumer, intermediate and investment goods sectors and also at small-medium enterprises and large-scale producers.
Rob Dobson, Director at HIS Markit, is positive about the manufacturing outlook commenting that “at the moment, the survey data suggest that the manufacturing economy remains in good health despite Brexit uncertainty, and should help support on-going growth in the economy in the third quarter, which will add fuel to hawkish policymakers’ calls for higher interest rates”.
In the US, second quarter growth was revised up from 2.8% to 3%, a marked rebound from the first quarter growth of 1.2%. Economist are not convinced this alters the picture of US economic growth significantly though with Gus Faucher, chief economist for PNC Bank, stating that “The economy today with this number looks a lot like the economy yesterday”.
Turning to China, the International Monetary Fund (IMF) reported in August that China’s credit growth is on a “dangerous trajectory”. The report states that without the credit boom China’s economic growth between 2012 and 2016 would have been slower by two percentage points.
The IMF recommends that China should put less focus on targets for economic growth as these “have fostered an undesirable focus on short-term, low-quality stimulus measures”
In India, economic growth for the second quarter slows to its slowest pace for three years. The economy grew by 5.7% compared with a year earlier, down from a rate of 6.1% in the previous quarter.
Analysts had expected the economy to bounce back after the government’s crackdown on the cash black market last year. The slowdown in growth comes on the back of confusion among some firms over a new tax on goods and services. With a complete overhaul on the way business pay tax in India introduced in July, there may be further issues to come.
Turning to the UK housing market, data released by Nationwide reveals that house price growth had slowed to 2.1% in August, down from 2.9% in July, in annual terms. Property values were down 0.1% month on month to an average of £210,495.
Nationwide’s Chief Economist, Andrew Gardener, pointed to the wider UK economy driving the slowdown stating that “The UK economy slowed noticeably in the first half of the year, and there has been little to suggest a significant rebound in the months ahead”.
Despite the slowdown in the housing market, Nationwide still expect prices to rise by 2% in 2017 across the UK due to the lack of new homes coming onto the market.
The benchmark 10 year UK Gilt yield stands at 1.03% at the end of July, down from 1.23% at the end of July, a sharp decrease of 16% month on month. Gilts advanced in price as investors rushed to the safest fixed income assets of UK Gilts, US Treasuries and German Bunds after reports that North Korea fired a missile over Japan, causing the sharp decrease in yields.
£1 currently buys $1.2925 or €1.0855. The Forex Gold Index is $1,311.75/oz and the Silver Index is $17.34/oz. Brent Crude Oil Spot is currently $50.29/barrel.
