Please find below our weekly Investment Snapshot for the week ending 20th April 2018.
A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
Not so long ago, the British pound was seen as the currency that investors should avoid. Now, it is becoming hard to ignore. Since June, it has outperformed all other major currencies against the dollar, gaining over 11%. This week, however, is most notable as the currency reached its highest point since the Brexit vote, nearly 2 years ago, almost hitting $1.44. The dollar has weakened significantly in 2018 which has helped proceedings, but the pound has also held its own against a much stronger euro – it is up 3% against Europe’s single currency so far this year. No single factor explains sterling’s rally, although the strongest argument centres on the Bank of England’s rate expectations. Rising Gilt yields have also helped to keep the pound buoyant, as investors are almost certain of a rate rise in May to follow the increase made in November of last year.
Be that as it may, the British currency has retreated slightly since its peak earlier this week, after weaker-than-expected inflation figures were released on Wednesday, prompting a discussion over the outlook on the future of UK interest rate rises. The annual change in the consumer price index fell to 2.5% in March from 2.7% in February, reducing the pressure on the economy and forcing the Monetary Policy Committee to revise their strategy regarding interest rates. The inflation data is unlikely to stop the interest rate rise in May, but the decline in trend inflation is likely to keep any other rises on hold for the duration of 2018. The decrease in inflation came as a surprise to economists and investors, and the pound fell 0.7% on the day, and currently sits at $1.4189.
In other news, Brent Crude Oil currently sits at $74.46 per barrel, after surpassing $74 for the first time in over 4 years, when the commodity crashed from well above $100 down to below $40 a barrel due to a surge in US shale supplies. The reason for a rise in the price of oil is mainly down to fears of supply disruptions, the geopolitical tension surrounding the Middle East, and a draw in US Crude stockpiles. Moreover, oil has been supported by strong demand heading into Summer, while fears have also mounted of supply shortfalls stemming from other political situations like Venezuela’s economic spiral, and the possible re-imposition of sanctions on Iran from the US. Growing concerns surrounding oil prices, along with a weakening US dollar that seems to have lost its talismanic tendency in recent months, has led more traditional ‘safe havens’ to move higher; Gold was valued at $1,311 just one month ago, but has risen by over 4% to a peak of $1,364 last week. It has levelled out around the $1,350 mark, but is now beginning to show a longer-term upwards trend of the commodity that has lost a lot of it’s popularity over the last couple of years.
Gary’s market comments in conjunction with our investment partners
With expectations so high at the end of last year, it is hardly surprising that Euro area data has been seen to be disappointing this year, with Economic data pointing to a slight slowdown in Q1 Growth. Specifically, looking at the hard data we have seen a weakening in the Eurozone area’s industrial production combined with slower retail sales, German factory orders and trade. The flip side of this is that the PMI’s, which have also come down, are still expansionary and as these are forward-looking indicators we are expecting growth to continue, but at a more modest level over the medium term.
Changes made to the 7IM Asset Allocated Passive funds over the last quarter were reflected in 7IM’s passive model portfolios in the quarterly rebalancing process. As a result, the team added to its UK, US and Japanese equities’ positions. The team also trimmed their European equity exposure, although the level of holdings still shows the team’s belief in the region’s continuing growth story.
Sources: LGT Vestra and 7IM