A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
Much of the main economic news stories of the week have centred around the US and in particular the US Federal Reserve Meeting on Wednesday 20th September. Markets around the world were largely quiet and neutral ahead of the meeting where hints of a future US interest rate rise were expected. The Fed confirmed that as a result of very positive economic data it will start to reduce its holdings of Bond and Mortgage backed securities from October. This currently stands at an eye watering $4.2 trillion. Investors are now expecting a greater than 50% chance of a December rate hike.
Last week I commented on UK inflation figures rising to 2.9% and now analysts are predicting inflation to jump to over 3%. With a potential rate hike in November 2017 (64% chance), are we seeing a global trend for increasing rates?
Safe havens such as Index Linked Gilts and gold, have suffered this week as a consequence with some significant drops experienced (Index Linked Gilts -6.5%)
Just in the news is that bumper VAT receipts have helped UK government borrowing to fall to its lowest August level since 2007. For the financial year to date, government borrowing is £0.2billion lower than last year.
Gary’s market comments in conjunction with our investment partners
Sterling continues to rally with the potential interest rate rise. Currently trading above $1.35, this is now at a level not seen since September 2017. However, with the strength of the euro continuing, the exchange rate between sterling and the euro still remains weak at €1.13. Continuing discussions over Brexit, however, could still cause sterling to fall.
US Inflation rose at its highest rate since January 17, (0.4% in August), on the back of recent hurricanes causing petrol prices to rise. This again contributed to the increase in positive data leading to the Federal Reserve decision to curtail its bond portfolio.
Sources: LGT Vestra and 7IM