Please find below our weekly Investment Snapshot for the week ending 15th December 2017.
A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
This week has seen many changes to Central Bank base interest rates. The US Federal reserve has raised their base rate by 0.25%, now standing at 1.25% to 1.5%, with the Fed chair, Janet Yellen, saying that the move, which was widely expected, underscores “solid” gains in the US economy. She also stated that she expects three further rate rises during 2018. Corresponding with this announcement, the Fed boosted their economic forecasts, projecting 2.5% growth in GDP in 2017 and 2018, due in part to planned tax cuts.
Following on from this news, China’s central bank raised their interest rates by five basis points. Raymond Yeung, ANZ’s Chief Economist for Greater China, said: “The rate hike offers little surprise following the US Fed rate hike overnight. … We now expect the China to hike rates by 35bps in total in 2018″. An indication that interest rates amongst the developed economies are on the rise.
Although the two superpowers raised their rates, the ECB has taken a more cautious approach and have put their monetary policy on hold, at least for now. This news comes despite the Bank having to significantly raise their GDP growth forecasts, and the Euro hitting a session-high of $1.1848, up 0.3% on the day of the decision. The verdict to keep interest rates on hold is said to largely be about concerns over hindering much needed inflation growth.
Gary’s market comments in conjunction with our investment partners
Over the past year the oil price has risen 41%, however the share prices of oil companies have not kept up with this rebound. The recent crack in the main North Sea pipeline that feeds the UK market, and the explosion at Austria’s Baumgarten import gas hub, has helped to send the oil price above $65 a barrel for the first time in more than two years. This higher price of oil, since July, allows oil producers to increase their margin and dividend cover which could allow debt levels to come down. LGT are currently looking at different ways to increase exposure to UK Listed oil producers thereby gaining exposure to a sector that could benefit from an oil price consistently sitting nearer $60 a barrel.
The latest formal quarterly tactical asset allocation process has concluded and portfolio decisions have been made, based on current market conditions and how 7IM believe the situation will develop over the next 3-12 months.
On the equity front, valuations remain challenging and the record low volatility means that there are limited opportunities for investors to step back in, had they balked at investing earlier in the year. However there are limited opportunities outside of equities as well – the rising market has led to a broad increase in all asset classes – deservedly or otherwise. 7IM continue to hold a significant proportion of assets in cash (10%) on the grounds that the current period of calm may not last too much longer, which could provide an opportunity to enter a market with more attractive valuations.
Sources: LGT Vestra and 7IM