A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
The European Commission has slashed its UK growth outlook for 2017 from 1.8% to 1.5% as a result of ‘uncertainty’ over Brexit, and has also cut the figure for the next year to 1.3% and 1.1% for 2019. This year’s forecasted growth figure of 1.5%, puts Britain’s economy joint lowest in the bloc with Italy, and far below both the significantly upgraded eurozone growth forecast of 2.2% and the wider EU outlook of 2.3%.
“Economic growth in the UK has been slowing since the start of the year, as higher consumer prices constrained private consumption growth,” the EU forecast said. This presents a significant difference to the pre-Brexit era, where the UK’s 2.1%, growth forecast exceeded the EU’s 1.6% figure.
Jerome Powell, has been appointed by President Trump to chair the Federal Reserve from 2018. Powell is expected to continue former chair Janet Yellen’s approach that sees US interest rates gradually normalising, but seems to be more favourable towards a reduction on regulation within the financial sector. It should be noted that he is the first non-economist to be appointed to this position since 1978. Nonetheless, he will be tasked with the challenges that lie within unwinding the enormous position that the Fed holds in bonds, and raising interest rates to levels that may create discomfort to many investors.
Gary’s market comments in conjunction with our investment partners
October was a strong month of performance for the LGT Model Portfolios. Every holding across all portfolios was in positive territory for the month, with equities being the core contributor to performance. Global stock markets continued to trend up in October, as the S&P 500 reached new highs, the Japanese Topix reached its highest point in two decades and the German stock market, the DAX, also reached a new all-time high. This is a reflection of the ‘risk-on attitude’ prevailing in markets as investors are buoyed by synchronised global growth, supportive monetary policy and promising levels of inflation. It is also a reflection of the corporate earnings season which has so far been good, with companies beating estimates.
7IM’s allocation to foreign currencies performed well as markets reacted to the Bank of England’s decision by selling the Pound. With traders dissatisfied that the Bank failed to provide a timeline for any future rate rises, and some estimates suggesting that rates would not rise more until August 2018 at the earliest, hopes of further constriction dwindled and with them the value of the Pound. While the Pound will probably remain volatile on the back of any progress or lack of it during the Brexit negotiations, 7IM’s 30% allocation to foreign currencies, which is broadly allocated across a range of currencies, will continue to support portfolios.
Sources: LGT Vestra and 7IM