LAST WEEK – KEY TAkeAWAYs
Pound up as Bank of England hints at hike
Sterling unexpectedly strengthened to a one-year high against the dollar at $1.36 late last week after the Bank of England governor Mark Carney suggested that the probability of a rate rise in the coming months has “definitely increased”. This followed the Bank of England’s September meeting where the Monetary Policy Committee voted 7-2 to keep interest rates on hold at 0.25%.
… as inflation surprises on the upside
The reason for the Bank’s potential change of tact is the threat of rising inflation, which remains comfortably above its 2% target. The headline Consumer Prices Index (CPI) hit its highest figure in more than five years in August, 2.9%, up from 2.6% in July, according to the Office for National Statistics. This was largely due to rising import costs for retailers. Wage growth however, remained lacklustre.
Could the Bank of England be on the same tightening trajectory as the Federal Reserve? The US central bank could raise rates again at its December meeting with CPI climbing 1.9% year-on-year in August, according to the Bureau of Labor Statistics.
Investors urged to ‘ignore’ latest North Korea missile
The North Korean threat intensified further as the state launched a second ballistic missile over Japan on Friday. However, markets remained generally calm on the news, while Standard Life Aberdeen’s co-chief executive Martin Gilbert was reported by CNBC to have told investors to “just ignore” the development for now and avoid making any knee-jerk reactions.
Elsewhere, Reuters quoted Per Hammarlund, chief emerging market strategist at SEB, who said market reactions to North Korea were “always going to be short-lived as we don’t have a move towards war and that seems unlikely still”.
French protest on Macron labour reforms
Hundreds of thousands of protestors took to the streets across France last week disgruntled with changes to the country’s labour laws, which make it easier for companies to hire and fire. The country currently has an unemployment rate of 9.5%, much higher than fellow major European economies, though president Emmanuel Macron has vowed to cut this to 7% within five years.
Looking ahead - TALKING POINTS
Merkel on track to win a fourth term in office
Angela Merkel’s Christian Democrats (CDU) look likely to win the most seats for the fourth election in a row when Germany heads to the polls on Sunday. The expected result is another coalition with the Social Democrats (SPD). Coalitions are not uncommon in Germany.
Support for the far-right Alternative for Germany (AfD) party is expected to be limited. This comes despite the country accepting over 1 million refugees in the 2015 migrant crisis, and shows the contrasting views and approaches of some of the world’s most powerful leaders.
German elections – latest poll (18 September)
Source: Wahlrecht.com/Radio Hamburg
Time for a eurozone health check
Sticking with Europe, a host of data on the health of the eurozone is due this week, beginning with Monday’s Consumer Prices Index (CPI) inflation figure, which matched forecasts at+ 1.5% for August. Earlier this month, the European Central Bank (ECB) cut its forecast for inflation to +1.2% for 2018 and +1.5% in 2019, below its 2% target.
On Thursday, we will get an update on consumer confidence across the region with an index measuring how likely citizens are to spend. Last month the figure was -1.50, which may not mean much on its own. To put it in to context, the index reached an all-time high of 2.20 in May 2000, and a record low of -34.60 in March 2009.
Friday will see the release of purchasing managers’ index (PMI) data on manufacturing and services. These are useful forward-looking indicators of economic health, based on companies’ new orders, inventory levels, production, supplier deliveries and the employment environment.
EU consumer confidence index – 10 years
Source: European Commission, tradingeconomics.com
THE OMNIS VIEW
Through a well-diversified approach to asset allocation, the Omnis investment team aims to defend and grow the value of your portfolio through market cycles.
The German election result may appear to be predictable but, as we learnt with the recent US, UK and French votes, politics can be far from predictable. As evidenced by the strength of sterling in recent days, it is currencies which are being impacted most by geopolitics. For the Omnis Managed Portfolio Service, this provides openings to be flexible and tactically allocate across the asset class range as and when opportunities present themselves.
Omnis Investments does not provide investment advice. This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments. Any opinions expressed are made as at the date of publication but subject to change. Information obtained from external sources is believed to be reliable but its accuracy is not guaranteed. The value of investments and any income from them can go down as well as up and you may not get back the original amount invested. Past performance is not a guide to future performance and should not be relied upon. Always seek professional advice before acting.