Financial Market Review February 2017

Ashleigh
by Ashleigh

Our market review will reflect a variety of factors; Macro and Micro economic political, local and global.

 

Summary

Love him or loathe him Donald Trump is making decisions and news in the United States and despite a high court ruling over Brexit in January the UK Prime Minister believes article 50 will be triggered in March.

 

The United Kingdom

The Bank of England’s interest rates remained at 0.25% from the previous quarter. [1] UK gross domestic product (GDP) has increased by 0.6% during Quarter 4 (Oct to Dec) 2016 despite the outcome of Brexit [2], continuing the positive trend of growth since 2015.[3]

General government gross debt was £1,652.0 billion at the end of March 2016, equivalent to 87.6% of gross domestic product (GDP); an increase of £47.9 billion on March 2015.[4] UK government debt is estimated to stand at £1.64 trillion in March 2017.

The FTSE has edged slightly higher after data showed the UK economy grew 0.6% in the final three months of 2016.[5] Shortly before midday on Thursday (26/01/17), the FTSE 100 index was up 13.47 points at 7,177.90. RBS jumped 5.2% even though the bank said it had set aside a further $3.8bn (£3.1bn) to cover potential fines.

The provision is for an expected penalty over the sale of financial products linked to risky mortgages before the 2008 financial crisis.[6]

 

Europe

The unemployment rate in the Euro Area stood at 9.8 percent in November 2016, the lowest since July 2009.[7] The Eurozone’s gross domestic product advanced by 1.7 percent year-on-year in the third quarter of 2016.[8] Annual inflation was 1.1 % in December 2016, up from 0.6 % in November 2016. [9]

European Central Bank says it will conduct an extra nine months of quantitative easing, but cuts bond purchases from €80bn to €60bn per month until March[10]

Greece may extend a contingency mechanism by a year until 2019 to ensure it meets fiscal targets and end a stalemate in talks with its euro zone lenders and the IMF over a bailout review.[11]

 

United States of America

Following Presidential Inauguration Day there has been a lot of uncertainty surrounding President Trump’s policies.  His plans were seen as positive for domestic growth and small and mid cap equities however the U.S. economy lost momentum in the final three months of 2016, closing out a year in which growth turned in the weakest performance in five years.

The gross domestic product grew at an annual rate of just 1.9 percent in the October-December period, a slowdown from 3.5 percent growth in the third quarter. In 2016, the economy grew 1.6 percent which is the worst showing since 2011 and down from 2.6 percent growth in 2015.[12]

US unemployment rate rose to 4.7 percent in December 2016 from a nine-year low of 4.6 percent in the previous month and in line with market expectations.[13]

Consumer prices in the United States increased 2.1 percent year-on-year in December 2016, following a 1.7 percent rise in November and matching market expectations. The inflation rate accelerated for the fifth consecutive month to the highest since June of 2014.[14]

 

Specialist markets

Oil prices were driven 2 percent higher by an ongoing rally in the U.S. stock market on Thursday (26/01/17), although gains were capped by plentiful supplies and bulging inventories in spite of efforts by producers to cut output.

Brent crude was up $1.12 a barrel, or 2 percent, at $56.20 by 2:34PM on 26/01/17 while U.S. light crude futures were up $1.03, or 2 percent, at $53.78.[15]

 

Emerging Markets

“(EMs) have a lower exposure to an export-driven (growth) model than is generally assumed. They have a better, balanced-type of growth model,” said Hechler Fayd’herbe of Credit Suisse, adding a large majority of EM countries have only a third of their gross domestic product (GDP) that is dependent on international trade.

Large EMs in Asia and Latin America, for example, have the advantage of a large domestic consumer base, many of whom are just entering the middle class, which allows them to look inwards for growth.

The world’s two most populous countries, China and India, are still growing at twice the pace of global growth; recently in its second quarter of fiscal 2016, India saw its economy grow by 7.3 percent annually, whereas China’s most recent factory activity data showed continued expansion in its manufacturing and services sectors.[16]

 

Asia & Japan

The central bank of Japan has maintained the negative 0.1 percent interest rate imposed on banks for some excess reserves, left the 10-year Japanese government bond (JGB) yield target at around zero, and kept annual rises in JGB holdings at 80 trillion yen. [17] The Japanese Yen weakened dramatically in November and December 2016 to the lowest level since February 2016. [18]

Hong Kong’s inflation rate remained unchanged at its lowest level since January 2010 at 1.2% in December 2016. [19]

China’s economy finished a tumultuous 2016 on a positive note as consumers stepped up spending and the property market rebounded. China’s gross domestic product (GDP) grew 6.8 percent on-year in the fourth quarter, slightly beating expectations and signalling growth was stabilizing. The world’s second-largest economy had been forecast to grow 6.7 percent in the quarter. [20]

 

Specific Companies

Ford has posted its first quarterly net loss in seven years.

The US car maker reported a net loss of just over $780m (£620m) in the fourth quarter, compared with a $1.9bn profit a year ago.[21]

 

Notice

This document is for general consideration only and consequently we cannot accept any responsibility for any loss as a result of any action taken or refrained from as a result of the information contained in it.  No individual or company should act upon such information without receiving appropriate professional advice.

If you would like to subscribe to a free quarterly or six monthly financial market review please email Ashleigh on ashleigh@redstarwealth.co.uk.

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[1]  http://www.bankofengland.co.uk/Pages/home.aspx
[2] https://www.theguardian.com/business/live/2017/jan/26/uk-gdp-growth-figures-q4-2016-brexit-live?page=with:block-5889f62fe4b029dbeb0a6c41#block-5889f62fe4b029dbeb0a6c41
[3]https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/economicreview/november2016#assessing-the-post-referendum-uk-economy
[4]https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicspending/bulletins/ukgovernmentdebtanddeficitforeurostatmaast/julytosept2016
[5]http://www.bbc.co.uk/news/business/markets/europe/lse_ukx?utm_content=bufferb1f21&utm_medium=social&utm_source=twitter.co.uk&utm_campaign=buffer
[6] http://www.bbc.co.uk/news/business-38755477
[7] http://www.tradingeconomics.com/euro-area/unemployment-rate
[8] http://www.tradingeconomics.com/euro-area/gdp-growth-annual
[9] http://ec.europa.eu/eurostat/statistics-explained/index.php/Inflation_in_the_euro_area
[10] https://www.theguardian.com/business/live/2016/dec/08/ecb-stimulus-qe-draghi-italy-bank-rescue-business-live
[11] http://uk.reuters.com/article/uk-eurozone-greece-review-idUKKBN1542TC
[12] http://www.mercurynews.com/2017/01/27/u-s-economic-growth-slowed-to-1-9-percent-in-fourth-quarter/
[13] http://www.tradingeconomics.com/united-states/unemployment-rate
[14] http://www.tradingeconomics.com/united-states/inflation-cpi
[15] http://www.cnbc.com/2017/01/25/oil-prices-rise-on-weakening-dollar-but-plentiful-supplies-cap-gains.html
[16] http://www.cnbc.com/2016/12/02/credit-suisse-investment-themes-show-why-emerging-markets-look-attractive.html
[17] http://www.cnbc.com/2016/12/19/bank-of-japan-holds-rates-steady-as-expected-kuroda-press-conference-awaited.html
[18] http://uk.businessinsider.com/japanese-yen-fx-december-9-2016-2016-12
[19] http://www.tradingeconomics.com/hong-kong/inflation-cpi
[20] http://www.cnbc.com/2017/01/19/china-economy-q4-gdp-slightly-above-expectations.html
[21] http://www.bbc.co.uk/news/live/business-38691604

 

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