The FTSE 100 index of leading UK company shares finished January at 6,749.40, rising by 193.3 points or 2.95% during the month. This followed a poorer than expected December and was boosted by quantitative easing measures announced by the European Central Bank (ECB).
January was the best month for the share index in nearly a year, as it recorded its strongest monthly gain since February 2014. Concerns about the general election result in Greece only slightly hampered the previous announcement on 22nd January that the ECB would fire its ‘big bazooka’ of massive quantitative easing to stimulate the European economy.
Despite the victory of an anti-austerity party in the Greek general election last month, and their pledge to write-off half of Greece’s debts, their new finance minister has claimed his priority is the wellbeing of all Europeans and has ruled out accepting more bailout cash. Respected economist Yanis Varoufakis is currently touring the continent and meeting with finance leaders, with the aim of putting a new plan for fiscal stimulus in place by the end of May.
The oil price continues to dominate investor sentiment, with the benchmark price of Brent crude rallying above $55 a barrel at the start of February. Investors were buoyed by news of falling US oil production and a refinery strike in the US, prompting many waiting in the wings to take their opportunity to invest.
Despite being bullish for some time, the markets are starting to show some negative signals towards the US economy. US Treasury yields are testing new lows, with the 10-year yield falling below 1.7% at the end of last month. This combined with the oil price is indicative of an economic recession, although the latest GDP figures show annualised growth in the US economy of 2.6% in the final quarter of last year.
US employment figures are also looking pretty robust, with the US Labor Department reporting its best year for employment in 15 years following a healthy gain in December. The US unemployment rate is now at a six-year low, at 5.6%.
Here in the UK, the latest Purchasing Managers’ Index (PMI) edged up slightly in January, boosted by a modest recovery in export orders. The PMI grew from 52.7 in December to 53.0 in January, with any level above 50 representing growth. The index at this level suggests economic growth in the UK in the first quarter of 0.2%.
The Bank of England rate remains at the historic low of 0.5%, with prospects for a rate rise this year looking less likely amidst a backdrop of falling price inflation, fiscal tightening and political uncertainty. A senior economist at the Royal Bank of Scotland is predicting the first rate rise in February 2016 and then for interest rates to rise very slowly, reaching only 2% by the end of 2017.
Price inflation has fallen across Europe recently, with the Eurozone Consumer Prices Index (CPI) measure of price inflation falling sharply to 0.2% for the year to December. Economists are expecting prices in Europe to continue falling for most of this year, possibly longer. Inflation in Europe is being driven lower by falling energy prices as well as lower demand for manufactured goods and falling food prices.
In the UK, price inflation as measured by CPI fell unexpectedly to its lowest recorded level at 0.5% for the year to December. The big fall in global oil prices pushed the inflation figures down, although economists had expected inflation at 0.7%. The Bank of England inflation target remains at 2% and their medium term outlook is for on target inflation, which suggests a period of higher than target level inflation could be coming.
If we look at the ‘core inflation’ figure, which strips out more volatile items such as food and energy from the inflation basket, this rose from 1.2% to 1.3% in December. Current inflation trends in the UK have been described by the Bank of England as “low, stable, predictable” inflation.
The latest IPD UK Annual Property Index shows that in 2014 the total returns on UK commercial property averaged 19%, with an increased availability for bank lending and higher inflows from private investors. Some forecasters are expecting more double-digit returns from this asset class in 2015 with a poor supply of assets pushing up prices.
According to the latest Nationwide House Price Index, annual house price growth continued to moderate at the start of 2015. Annual house price growth slowed to 6.8% in January after recording 7.2% in December. This means the average growth has now slowed for five consecutive months. UK house prices rose by 0.3% in January and the average house value now stands at £188,446.
The benchmark 10 year UK Gilt yield currently stands at 1.38%. £1 buys $ 1.50520 or € 1.32610. The Forex Gold Index is $1,272.50/oz and the Silver Index is $17.22/oz.
