MARKET UPDATE: WILL VALENTINE’S DAY INFLATION DATA SEND INVESTORS’ HEARTS INTO A FLUTTER?

MARKET UPDATE: WILL VALENTINE’S DAY INFLATION DATA SEND INVESTORS’ HEARTS INTO A FLUTTER?

12th February 2018

LAST WEEK – KEY TAkeAWAYs

Bank of England adopts hawkish tone, but leaves interest rates unchanged for now

As expected, the Bank of England’s Monetary Policy Committee (MPC) voted unanimously to hold interest rates at 0.5% last week. However, in its accompanying forecasts and rhetoric, the Bank took a more ‘hawkish’ stance – meaning it is likely to tighten monetary policy further through raising interest rates. Governor Mark Carney said the Bank expects to “reduce support” to the UK economy in order to bring inflation down from the current 3% rate towards its 2% target. Immediately following Carney’s press conference, bond yields and sterling spiked higher.

Volatility returns in markets

Many, including the Omnis investment team, expect equity markets to be more volatile this year. Last week was evidence of this as both equity and bond markets sold off following stronger US wage growth – a sign that US inflation may be strengthening. Markets have since recovered some of the losses, though this week will be a crucial one with further data due, including the latest US consumer prices index (see below).

Senate passes delayed budget deal, after another US government shutdown

President Donald Trump has signed a budget that promises to increase federal spending by $300bn over the next two years, with spending on the military and domestic programmes to rise. Friday’s measure ended a second US government shutdown this year, albeit only for a few hours. After working through the night, senators eventually voted 71 to 28 to approve the deal.  

German politicians finally agree coalition

More than four months on from the German general election, the two main parties have finally agreed on a coalition deal. Angela Merkel’s conservatives (CDU/CSU) have reached an agreement with the centre-left Social Democrats (SPD), with the latter set to control six ministries, including finance and foreign affairs. However, SPD members still need to vote before a new government can be formed (results will be announced on 4th March).

Chinese central bank sets out goals ahead of New Year celebrations

The People’s Bank of China has set out its goals as the country heads for its New Year celebrations this week. These included strengthening financial risk prevention and control, keeping liquidity in the banking system, and improving the housing finance system. Because of the New Year celebrations, the Shanghai stock exchange will close for business between 15 and 22 February.

Looking ahead - TALKING POINTS

Markets set for US inflation data

This Wednesday sees the US Bureau of Labor Statistics potentially getting investors’ hearts into a Valentine’s Day flutter with release of headline consumer price inflation (CPI) data. The most recent data showed inflation at 2.1% in December 2017, and although analysts expect the percentage to have fallen in January, any surprises to the upside could cause renewed pressure on financial markets.

As shown by the sell-off last week that followed the release of higher than expected wage inflation data, markets remain sensitive to surprises, particularly in the US where inflation has remained stubbornly low. Latest retail sales data will also paint a clearer picture on the health of the economy. US retail trade increased 0.4% month-on-month in December, following an upwardly revised 0.9% rise in November. The figure may well rise, giving that the country is close to full employment.

US Consumer Price Inflation - January 2017 to December 2017

 Rsz _us _inflation _feb _18

Source: US Bureau of Labor Statistics, Tradingeconomics.com

Japan to report fourth-quarter growth data

Japan will release its gross domestic product (GDP) growth figures for the fourth quarter of 2017 this week. Moody’s Analytics has predicted that the figure will be an increase of 0.4% on a quarter-by-quarter basis, mainly due to high global demand during the period.

Any rise would represent an eighth straight quarter of growth. Full-year GDP is forecasted to increase by 1.6%, in part helped by a weaker yen, which boosts exports. For those looking for further insight into the economy, revised industrial production data is also due this week, as well as the latest news on machinery orders.

Japan GDP Growth – Q4 2014 to Q3 2017

 Rsz _japan -gdp -growth _jan _18 (1)

Source: Cabinet Office, 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. While equity markets have been experiencing an overdue period of volatility, the longer term economic growth story remains intact. We believe that the recent market moves are a healthy correction in market levels and will create further opportunities for Omnis fund managers.

Omnis Investments is now tweeting daily updates. Follow us at: @OmnisInvest

The Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC are authorised Investment Companies with Variable Capital. The authorised corporate director of the Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC is Omnis Investments Limited (Registered Address:  Washington House, Lydiard Fields, Swindon, SN5 8UB) which is authorised and regulated by the Financial Conduct Authority, 25 North Colonnade, London E14 5HS. Omnis Investments Limited does not offer investment advice nor make recommendations regarding investments. Potential investors are particularly advised to read the specific risks and charges applicable to the Funds which are contained in the Prospectus and Key Investor Information Documents (KIIDs).

Omnis Investments Limited is registered in England and Wales under registration number 06582314 (Registered Office: Washington House, Lydiard Fields, Swindon SN5 8UB).