In our latest monthly investment update for November 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 October at 7,493.08 points, an increase of 120.32 points or 1.63% during the month.
UK Consumer Price Index (CPI) inflation data released in October saw a 0.1% increase from 2.9% in August to 3% in September.
Mike Prestwood, head of the Office for National Statistics (ONS), said:
“Food prices and a range of transport costs helped to push up inflation in September. These effects were partly offset by clothing prices that rose less strongly than this time last year”.
The September inflation figures are especially significant as under the ‘triple lock’ guarantee the basic state pension will rise by the higher of September CPI rate, earnings growth or 2.5%.
Mark Carney, Governor of the Bank of England, commentated to MPs on the Treasury Committee that because of the fall in the value of the pound “inflation rising potentially above the 3% level in the coming months is something we have anticipated”.
However, the Office for National Statistics reported Gross Domestic Product (GDP) growth of 0.4% in the third quarter with the most significant contributor being the service sector, particularly computer programing and motor traders.
The better than expected third quarter GDP data has many UK economists seeing it as a ‘green light’ for an interest rate rise when the Monetary Policy Committee (MPC) meets on 2nd November.
In the Eurozone, the European Central Bank (ECB), after raising its economic growth forecast up to 2.2% back in September, has announced that from January 2018 it will cut its bond buying programme in half from €60bn to €30bn per month.
The move signifies that the Eurozone recovery is gaining momentum and French third quarter GDP figures released at the end of October coming in above analysts’ expectations at 0.6%, only help to reinforce this.
However, ECB President, Mario Draghi, commentated that “Our programme is flexible enough that we can adjust its size smoothly”, hinting that bond buying could be increased again if economic conditions became less favourable.
The IHS Markit/CIPS UK manufacturing Purchasing Managers’ Index (PMI) shows that UK Manufacturing had another solid month with the PMI at 56.3 in October, up from 56.0 in September. The PMI has now signalled expansion for 15 consecutive months.
The expansion was distributed across sub-sectors, with consumer, intermediate and investment goods producers all registering output growth. The robust performance of the manufacturing sector was reflected in the labour market with the pace of job creation growth at a 40 month high.
Rob Dobson, Director at HIS Markit, commentated that “UK manufacturing made an impressive start to the final quarter of 2017 as increased inflows of new work encouraged firms to ramp up production once again” but caveated this by noting that “annual input price inflation is moving back into double-digit rates, which may feed through to higher pressure on consumer prices in coming months”.
Over in the US, economic growth continues to be stronger than expected with third quarter GDP growth reported at an annual pace of 3%, down only marginally from the 3.1% annualised growth reported in the second quarter. The expectation from analysts had been that the damaging effects of the hurricanes that battered several US states would have caused a sharp slowdown.
Consumer and construction spending did fall but exports and business investment accelerated. The Commerce Department did however caution that its figures did not capture all the losses caused by the storms.
Economists noted that the underlying strength of the economy shown in the data makes it more likely that we will see the US Federal Reserve raise interest rates again by the end of the year.
In China, the economy grew at an annualised rate of 6.8% between July and September. This is down marginally from the 6.9% reported in the second quarter but was in line with analyst’s forecasts and above the 6.5% growth target set by the Chinese government for 2017.
China is working to reduce its high levels of debt as well as contain a housing bubble without damaging growth but Capital Economics China economist Julian Evans-Pritchard commentated that “A less supportive fiscal policy stance and slower credit growth should result in a slowdown over the coming months”.
Turning to India, the Indian government has announced a $107bn (£80bn) programme to build over 50,000 miles of road over the next five years. The project is expected to help a significant portion of the one million Indians entering the workforce every month find jobs and, according to the Indian government, will create more than 140 million working days.
Some commentators are sceptical about the ambitious nature of the project though pointing to the fact that it would need to average around 17,000 km of road per year but the country has only managed to build an average of 5,000 km over the past three years.
Looking at the UK housing market, Halifax’s house price optimism index dropped 14 points between April and October, a fall matching that recorded after the Brexit vote. Overall, 20% of people surveyed by Halifax expect house prices to fall over the next year with London being the only region to have a net negative outlook.
Average UK house prices are continuing to rise though with Halifax reporting an annualised growth rate of 4% to September, while Nationwide reported a 2% annualised increase.
Halifax pointed to a shortage of properties for sale as supporting prices but Russell Galley, the managing director of Halifax Community Bank, warned that “increasing pressure on spending power and continuing affordability concerns may well dampen buyer demand”.
The benchmark 10 year UK Gilt yield stands at 1.33% at the end of October, a moderate decrease from 1.39% at the end of September.
£1 currently buys $1.3308 or €1.1423. The Forex Gold Index is $1,270.15/oz and the Silver Index is $16.82/oz. Brent Crude Oil Spot is currently $58.59/barrel.
