A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
UK GROWTH REVISED DOWN
The Office for National Statistics (ONS) released its second growth estimate for Q1 GDP growth, stating that economic growth slowed to 0.2% in the quarter, down from its first estimate of 0.3%.
EUROZONE CONFIDENCE SLIPS
The Eurozone’s economic confidence fell for the first time this year according to the European Commission and its consumers’ outlook for inflation weakened. The index of executive and consumer sentiment fell to 109.2 in May, down from the revised April number of 109.7. While that was lower than economists’ expectations, the gauge remains close to its highest level in a decade.
US GROWTH REVISED UP
The US economy grew at a faster pace than initially thought in the first three months of the year. US growth was 1.2% in the first three months of the year versus the 0.7% initial estimated. However, the revised figure still represents a slowdown from the 2.1% growth rate recorded in Q4 2016. While consumer spending improved from the initial estimate of 0.3%, its growth remained weak at 0.6%, slower than any quarter since 2009.
Gary’s market comments in conjunction with our investment partners
OPEC have agreed to continue reducing oil supply to stabilise the price. The fall in the oil price has had a significant impact on the economies producing oil. Pressures from shale oil, green technology and lower demand for oil is likely to continue to keep the price relatively low.
7IM reduced its US Dollar holdings across all its unitised portfolios to zero, and increased its exposure to Sterling by the same percentage in each of the risk profiles. Balanced fund investors therefore saw their Sterling allocation increased from 65% to 75%, with the rest of the foreign exchange exposure in Euros and Emerging Market currencies.
While the current attention is on the election, Brexit negotiations will follow swiftly afterwards and clarity on the direction could provide an opportunity for Sterling to rally further. In addition, economic growth in the UK is still positive – we should not forget, that before the EU Referendum, the UK was one of the strongest developed economies, along with the US. While growth may be slowing, it has not slowed enough to justify the sharp fall in Sterling since the Referendum.
Sources: LGT Vestra and 7IM