Please find below our weekly Investment Snapshot for the week ending 23th March 2018.
A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
The UK’s Monetary Policy Committee today voted 7-2 against an immediate interest rate rise to 0.75% from the current 0.5%, instead agreeing that an “ongoing tightening of monetary policy over the forecast period would be appropriate”. This has set the stage for the next interest rate rise at the Bank of England’s next meeting in May, with the bank saying that pay growth was accelerating and inflation was likely to stay above the 2% target for “too long”. The announcement maintains the Committee’s pledge that any rate rises to come were likely to be at a gradual pace and to a limited extent – a commitment that has persuaded financial markets not to expect more than two rate rises this year. The pound surged higher after the decision, rising as high as $1.4216, but has since backed down to $1.416. That still left the British currency up 0.13% on the day, and up 4.8% against the dollar in 2018.
In contrast to the UK interest rate rise, the US Federal Reserve revealed on Wednesday that they have raised short-term interest rates by a quarter point, to 1.5-1.75%, in an attempt to prevent the acceleration of inflation within the US. The new Fed chair, Jay Powell, unveiled the news in his first post-meeting statement since becoming the head of the World’s largest central bank. As he addressed the media, he avoided suggestion that the US Central Bank wants to clamp down aggressively on the economy. Instead, he played down the importance of the rate rise, stressing the uncertainties surrounding the outlook – stating “There is no sense in the data that we are on the cusp of an overheating economy’.
Markets were left largely unmoved by the Fed’s decision and Powell had every incentive to avoid excitement – a market sell-off triggered by a hawkish new chairman would be an inauspicious way to begin his term. On the other hand, the deteriorating foreign situation in regard to international trade took a toll on market performance across the board on Friday, as China responded to the idea of US tariffs on steel imports. The Dow Jones is down 2.93%, while the Hang Seng has fallen 2.45%. The Japanese Nikkei has taken the largest hit, down 4.51% on the day, and the FTSE is currently down 0.74%, going below 7,000 points for the first time since December 2017. Fears over a trade war between US and China, coupled with the increase in US interest rates, has left the dollar exposed as it fell to a 10-session low to 89.524, taking it down 1% over the last two sessions and leaving it’s fall for the week at 0.8%.
Gary’s market comments in conjunction with our investment partners
LGT Vestra currently have exposure to European equities across the medium and higher risk portfolios through a fund run by BlackRock which invests in companies positioned to benefit from the continued European growth story. In their Adventurous portfolio, they have also recently added exposure to European smaller companies via a Henderson fund.
The 7IM team has begun its formal quarterly tactical asset allocation process of assessing current market conditions and economic expectations to determine whether the portfolios need to be revised. The process starts with a review of all the main regions of the world, looking at economic and political developments that could impact asset returns over the next 3-12 months.
Sources: LGT Vestra and 7IM