Our investment and economic update for June 2018 takes a closer look at how the investment markets, global economy and commodities are performing.
The FTSE 100 index of leading UK company shares finished May at 7,678.20 points, up 168.9 points or 2.25% during the course of the month.
The index finished with a bout of volatility at the end of the month, with the threat of trade tariffs being introduced by the United States making investors in some UK companies nervous.
The FTSE 100 was the best performing European stock index in May, with investors able to ignore any concerns about the ongoing political crisis in Italy.
As a commodity-stocks heavy index, the FTSE 100 benefited from a continued rally in precious metals during May too. Energy stocks listed in London also did well thanks to a higher oil price.
A new survey from State Street, their ‘Brexometer’, shows investors confidence in UK investment assets rising during the past quarter. The number of investors seeking to reduce their UK holdings fell to a record low of 14%, according to the survey.
In the eurozone, stocks fell by 2.5% during the month, with the Italian political crisis causing speculation about the future stability of the euro.
Manufacturing activity in the eurozone recorded its slowest pace of expansion in 15 months during May. The headline manufacturing Purchasing Managers’ Index was 55.5 in May, which confirmed an earlier flash estimate. It was down from 56.2 a month earlier.
Survey author Chris Williamson, chief business economist at IHS/Markit, said: “Slowing export sales have been a key drag on both production and order book growth, with the May survey indicating that new export orders rose at the weakest rate for nearly two years, linked in part to the appreciation of the euro alongside reports of weakened demand for imports from key markets, notably the US.”
In the UK, consumer confidence improved slightly last month. GfK’s UK consumer confidence barometer rose two points but remained in negative territory with a reading of minus seven.
The general economic situation appears to be weighing particularly heavily on the minds of consumers, with the survey describing this as ‘resolutely downbeat’ at -24. This is slightly improved when compared with the reading in April, but remains lower than this time last year, when it stood at -20.
The UK economy grew by 0.1% in the first quarter of the year, the worst rate of growth since 2012. It was the second, unrevised estimate of first quarter economic growth from the Office for National Statistics, which also shows that household spending rose by 0.2% between the final quarter of last year and first quarter of this year.
The ONS warned of “a continuation of a pattern of slowing growth, in part reflecting a slowing in the growth of consumer-facing industries”. The service sector grew by 0.3% in the first quarter, but distribution, hotels and restaurants contracted by 0.1%.
Price inflation in the UK, as measured by the Consumer Prices Index (CPI), rose by 2.5% in the year to March. This was its lowest rate in a year, falling from 2.7% in the year to February.
However, with average wages rising during the same period, it appears the longstanding cost of living squeeze could be coming to an end. The latest figures show UK wages rose by 2.8% in February, slightly exceeding the March CPI inflation figure.
Against a backdrop of easing price inflation and concerns about economic growth, the Bank of England kept interest rates on hold at 0.5% in May. Seven of the nine members of the Monetary Policy Committee voted to keep rates on hold, adopting a ‘wait and see’ approach to monetary policy.
As a result of interest rates remaining on hold, Pound Sterling fell against the US Dollar, falling below $1.35 to reach its lowest level in four months.
UK house prices fell in May, according to the latest Nationwide survey. A faltering economy, pressure on household budgets and the prospect of rising interest rates were all cited as reasons for the monthly fall.
The Nationwide survey shows average house prices falling by 0.2% on a month-by-month basis. It’s the third fall in prices in four months. Price growth slowed from 2.6% in April to 2.4% in May when viewed on an annualised basis.
Robert Gardner, Chief Economist at Nationwide, said: “There are few signs of an imminent change. Surveyors continue to report subdued levels of new buyer inquiries, while the supply of properties on the market remains more of a trickle than a torrent.”
It means the average house price was £213,618 in May, up from £213,000 in April.
Across the pond, US economic growth was revised slightly lower for the first quarter. The US economy is estimated to have grown by 2.2% on an annualised basis during the first three months of 2018, down slightly from an initial estimate of 2.3% growth.
It suggests a slowdown in economic growth in the US, which grew at 2.9% on an annualised basis in the final quarter of last year. The slower growth was driven by a sharp slowdown in consumer spending, nearly 3% lower on a quarter-by-quarter basis.
US equities have been in a narrow trading range to date this year, with geopolitical issues in Europe prompting greater volatility during May. Trade tensions and relations with North Korea also appear to be driving investor sentiment in the US.
In China, more than 200 China A shares made their debut on the MSCI Emerging Markets Index at the start of June. The move is expected to attract billions of dollars of new investments into the mainland Chinese stock market, although it’s a largely symbolic move relative to the size of the domestic market for shares.
China A shares are yuan-denominated stocks traded on the mainland and a second phase onto the MSCI Index will happen in August. The move means that China’s proportion of the index will stand at 31.3%, rising to 42% of the index once full inclusion is completed in the summer.
The benchmark 10 year UK Gilt yield ended May at 1.23%, falling slightly from 1.41% at the end of April, on the reduced likelihood of an interest rate rise.
£1 currently buys $1.3323 or €1.1415. The Forex Gold Index is $1,303.50/oz and the Silver Index is $16.45/oz. Brent Crude Oil Spot is currently $76.94/barrel.
