LAST WEEK – KEY TAkeAWAYs
Donald Trump and Kim Jong-un set for face-to-face talks…
In a surprise announcement, the leaders of the US and North Korea have agreed to meet in person for peace talks. President Trump has said the yet-to-be-arranged summit could produce the “greatest deal for the world”, though he will need to tread carefully with any further fall-out with Kim Jong-un likely to increase tensions between the two countries. US vice-president Mike Pence said the thawing of tensions proves sanctions on Pyongyang are working, while Asian markets reacted positively to the news last week.
… As Trump’s ‘trade war’ rhetoric leads to Cohn departure
China’s leadership has had its say on US protectionism, metal tariffs and Trump’s recent assertion that “trade wars are good”. Beijing can handle any challenges, China’s commerce minister reportedly said on Sunday. “Trade war has no winners, it will only bring disaster to the economies of China, the US and the world”. Gary Cohn, the president’s top economic adviser, has resigned following the introduction of tariffs on steel and aluminium.
Extended negotiations likely in bid to form new Italian government
As expected, the results of last week’s Italian election delivered a hung parliament. Following its poor showing in the polls, the ruling centre-left Democratic Party’s leadership was due to meet in Rome on Monday to acknowledge the resignation of prime minister Matteo Renzi. The centre-right bloc led by Matteo Salvini’s League and its rival, the Five Star Movement headed by Luigi Di Maio, have both reached out to the party about possible cooperation in a new cabinet.
ECB signals end to monetary stimulus?
As expected the European Central Bank (ECB) kept interest rates on hold at its March meeting, though signals from bank president Mario Draghi that policy makers are on track to end its €2.55trn bond purchase programme this autumn led to more volatile trading in the euro. Previously, the ECB has stated that it stands ready to increase the level of bond purchases it makes in both duration and/or size, in case the economic outlook deteriorates in the eurozone. However, it removed the statement from its communication on Thursday, which market commentators believe indicates that stimulus in the region could be about to come to an end.
Japan’s fourth-quarter growth revised upwards
Japan’s economy grew better than had been initially reported in the last three months of 2017, according to a revised estimate from the Cabinet Office. The new reading for gross domestic product (GDP) shows growth of 1.6%, up from the preliminary estimate of 0.5% reported last month. The revised reading beat the median forecast of 0.9% from economists polled by Reuters. Despite this eighth-consecutive quarter of expansion, analysts are not expecting an end to monetary stimulus from the Bank of Japan in the near future.
Looking ahead - TALKING POINTS
US inflation to remain steady?
Latest inflation data from the US Department of Labor is due on Tuesday. On an annual basis, the rate came in at 2.1% in both December and January, and consensus from analysts suggests there will be a similar reading in February, possibly up to 2.2%. On Friday, the latest employment report showed slower wage growth last month – the annual rate fell back from 2.8% to 2.6%.
Of course, these measures are all used by market participants to make predictions on the next interest rate rise; it seems certain that the Federal Reserve will instigate further rises, but how many moves are due this year is still debated.
US inflation rate - February 2017 to January 2018
Source: US Bureau of Labor Statistics, Tradingeconomics.com
Chancellor to bring better news on UK economy in Spring Statement?
Chancellor Philip Hammond sets out his Spring Statement on Tuesday. While paired down from previous years’ Spring Budget, the statement nevertheless will set out the latest economic and public finance forecasts from the Office for Budget Responsibility (OBR), if not any updates on tax or spending. In an address that will last no longer than 15 to 20 minutes, Hammond is expected to deliver positive news on the economy, with expectations that the OBR’s growth predictions from a few months ago underestimated the real figure.
In November’s Budget, the OBR predicted the economy will grow by an average of 1.4% across each of the next five years. However, the OBR underestimated growth for 2017, which came in at 1.7% against its forecasts of 1.5%. Also, having predicted borrowing of £49.9bn in 2017-18, the OBR is instead likely to restate that figure to around £43bn.
OBR – November 2017 economic and fiscal outlook
Source: Office for Budget Responsibility
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 team has long believed that while we may experience more volatile times for markets, the growth outlook for major economies remains good. This includes the UK, where recent data from the Office for National Statistics showed the second half of last year to have been the best period of productivity growth for a decade. Was this a blip? We shall find out soon enough.
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