Market Update: Equities Shrug off Syria attack, while China set to map out growth

Market Update: Equities Shrug off Syria attack, while China set to map out growth

16th April 2018

LAST WEEK – KEY TAkeAWAYs

Markets shrug off Syria attack, while investors await Russian response 

  • Allied strikes on Syria have had a limited impact on major stock markets.
  • Syrian ally Russia has yet to respond, while there are reports that Washington is poised to increase pressure on Moscow with fresh economic sanctions.
  • Oil surged in value last week, but prices have since fallen back. Russian stocks and the rouble have been on the slide.
  • The Omnis view: there has been little impact on our funds. The Omnis Emerging Markets Equity Fund has a small exposure to Russian stocks, which have since rebounded following last week’s falls.

Global stocks rally as Chinese leader cools trade war talk… 

  • Speaking at Boao Forum for Asia, president Xi Jinping promised lower import tariffs on some products, including cars.
  • Also promised were measures to widen market access to foreign investors, and protection of the intellectual property of foreign firms.
  • President Trump tweeted his thanks for the Chinese president’s “kind words”, adding “we will make great progress together”.
  • The Omnis view: We think that both sides will continue to posture ahead of talks.

… while China reports surprise trade deficit

  • China recorded a trade deficit of $4.98bn in March, the first deficit since February 2017.
  • But, the country’s trade surplus with the US surged 19.4% to $58.25bn between January and March.
  • Exports gained 14.8% from the same period a year earlier, while imports rose only 8.9%.
  • The Omnis view: a stronger yuan may now be taking its toll on China’s exports; however, first quarter figures are expected to show the economy remaining strong (see below).

Disappointing figures for UK manufacturing and industrial output

  • UK manufacturing dipped by 0.2% in February, according to the Office for National Statistics, the first time output has dropped since March 2017.
  • Overall industrial output increased by 0.1% in the same month, boosted by surge from energy sector due to the cold weather.
  • Despite weaker numbers, an Institute of Directors survey finds company directors mostly positive on UK’s economic prospects.
  • The Omnis view: we remain cautious on the UK in the run-up to Brexit, while the latest inflation data released this week will give a clearer picture on future monetary policy (see below).

Climb in US inflation raises chances of a further rate rise in 2018

  • The Labor Department said that the US core consumer price index (CPI), which excludes food and energy prices, advanced 0.2% last month, and was up 2.1% year-on-year.
  • The Federal Reserve’s (Fed) preferred gauge of inflation, a consumption-based figure, is still shy of its 2% target.
  • The Fed has already raised rates once in 2018 and has indicated two more hikes are on the way; but could there be a third?
  • The Omnis view: the US economy continues to grow,but we think the Fed will be cautious in its approach to interest rates. This week the US corporate earnings season should give more information on the state of the economy.

Looking ahead - TALKING POINTS

Chinese GDP data due for first quarter of 2018

  • China will release first quarter gross domestic product (GDP) data on Tuesday, along with March industrial output, retail sales, property sales and investment, and fixed asset investment data.
  • Policy makers have set a target of 6.5% growth, but polls of economists from Bloomberg and Reuters see GDP closer to 6.7% or 6.8%.
  • Central bank governor Yi Gang said on Thursday that first quarter economic data has so far been slightly better than expected.
  • The Omnis view: the health of the second largest economy in the world is important for growth prospects because of the interconnected nature of economic activity due to globalisation. Chinese growth rates are expected to slow in future years, just by virtue of size, but the market is sensitive to surprises.

China GDP annual growth rate (%) – January 2015 to December 2017

Source: National Bureau of Statistics of China, tradingeconomics.com

UK and eurozone inflation data due; could Bank of England monetary policy be impacted?

  • March inflation data from both territories is due on Wednesday – if UK inflation is high, EUR/GBP exchange rate likely to remain low.
  • UK inflation is expected to have held steady as a drop in food and fuel prices was offset by higher airfares around the earlier Easter holidays.  
  • Eurozone consumer price inflation (CPI) is expected to pick up to 1.4% year-on-year with prices of services and food, alcohol and tobacco rising at a faster pace.  
  • The Omnis view: slower growth from UK CPI could ease pressure on the Bank of England, which is widely expected to hike interest rates beyond 0.5% in May.

UK inflation rate (%) – March 2017 to February 2018

Source: Office for National Statistics, tradingeconomics.com

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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).

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