Please find below our weekly Investment Snapshot for the week ending 16th March 2018.
A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
Market data
Sharp falls for the technology and energy sectors weighed on US equity indices earlier this week, as investors watched yet another ‘shake-up’ in the Trump administration. Rex Tillerson, who had been the US Secretary of State since the beginning of Trump’s presidency, discovered the loss of his job over Twitter – with the President citing ‘differences in personality’ as the reason for dismissal. Meanwhile, US inflation data confirmed suspicions of a 0.2% rise in the consumer price index; keeping the year-on-year rate of inflation at 1.8%. This is still below the Federal Reserve’s 2% inflation target, but the increase, matched with strong economic performance, suggests that inflation could continue to rise. Certainly, the data will only reassure US policymakers that increasing the base interest rate later on this month is a correct, and timely, decision. As if there wasn’t enough to consider for US investors at this time, there still remains a cautious feel within the market as assessments are carried out on the prospects of a more protectionist US trade policy, leading to a global ‘trade war’.
Due to the concern over the USA, and its foreign trade policy, equities fell across the world – the tech-heavy Nasdaq Composite ended the day on Tuesday 1% lower, while the Dow Jones Index fell 0.7%. European stocks also came under pressure, not helped by the gains for the euro and pound as the dollar weakened. The German Dax fell 1.6% and the FTSE also fell more than 1%. Despite the turmoil earlier in the week, the resilience of financial markets, down to synchronised global economic growth, was demonstrated as indices across the world rebounded nearer the end of the week. European stocks steadied as markets opened on Thursday, with the Dax currently up 0.9% at the time of writing, while the FTSE 100 is gaining 0.3% on the session. The technology, financial and resource sector are all higher than they were last week despite the worldwide equity decrease. Asian indices also rose off their lows from earlier this week, as the Hong Kong’s Hang Seng index recovered from a 0.8% drop to rise 0.3% overall for the week.
Gary’s market comments in conjunction with our investment partners
One of the targets that the ECB has set is the pursuit to maintain price stability, which was clarified in 2003 to be “below, but close to 2% inflation”. At a recent conference, ECB President Draghi reiterated the need for this inflation target to be met before he is willing to see the QE program end. With the current figure at 1.2%, being both below and reasonably close to 2%, this can be seen as roughly in line with the target. Draghi then moved on to cover wage growth and stated that momentum was increasing towards where it needed to be to sustain a low, but steady, inflation rate over the years ahead. Effectively, this will continue to create a scenario where the ECB is not forced to reduce its QE policy before it is confident that Eurozone growth is firmly underway, allowing Draghi to continue with his mantra (somewhat learned from the FED following the markets taper tantrum in 2013) of patient, persistent and prudent.
In the event of a sharp fall in global equity markets, foreign currencies such as the US Dollar and Yen tend to act as safe havens. 7IM believe we are moving back towards a world with more volatility in both equity and bond markets, so they believe that increasing the potential for diversification and protection is sensible. As such, they have reduced the levels of Sterling-denominated assets in their portfolios and have also bought an option against the US Dollar to complement the Sterling-Euro option purchased last week.
Sources: LGT Vestra and 7IM
