Bank of England raises UK interest rates
As predicted in our last Monthly Market Outlook report, the Bank of England raised the interest rate at the beginning of August for only the second time in a decade. The rate has risen by a quarter of a percentage point, from 0.5% to 0.75% - the highest level since March 2009.
All nine members of the Bank’s monetary policy committee voted to push rates up to 0.75 per cent. It brings an end to a decade of historically low rates as the economy moves out of the aftermath of the financial crisis.
The Bank said that low interest rates were likely to be the new norm because of an ageing population, which is more likely to save money, and businesses no longer being inclined to borrow as much. Short-term factors such as austerity and Brexit are also applying downward pressure on interest rates.
The Bank of England predicts that the days of high interest rates are over and the cost of borrowing is unlikely to rise above 3 per cent for decades, This is positive news for the long-run, as businesses and investors like low interest rates (as this promotes consumer demand/spending & keeps down finance borrowing costs for businesses).
Emerging market (EM) equities strongly outperformed developments market equities in 2017, driven by better global growth prospects, low inflation and interest rates, a lack of negative news from China, as well as a relatively weak US dollar versus EM currencies.
This year, however, has so far proven to be more challenging. After a very strong start during most of January, inflation concerns late in the month triggered a market sell-off as bond yields rose in the US and Europe. In mid-March, equities came under pressure again, as global technology stocks dropped following the Facebook scandal. Since March, protectionist rhetoric from the US, monetary tightening from the US Federal Reserve (Fed), a stronger US dollar and weaker data from China have reversed some of emerging markets’ earlier momentum.
This pullback has brought EM equity valuations down from their five-year highs in January to more reasonable levels, which we believe now offer an attractive entry point.
While many developed economies struggle with the demographic challenges associated with an aging population, emerging and developing economies benefit from a younger demographic, with China alone having 400 million millennials (those generally born between 1980 and the late 90s), which is more than the entire population of the US.
Emerging market assets ended July higher as the US dollar gave up some of its earlier gains. In addition, the Chinese government’s announcement of tax cuts and infrastructure spending measures aimed at boosting economic growth also provided further support for emerging markets over the period. China’s rapid growth has driven a change in the economic profile of the population, with significant growth in the middle-income earners. These more cash-rich millennials are likely to have a significant impact on spending patterns and growth.
Tritax Big Box REIT PLC 8.1% Potential Upside Indicated by Liberum Capital
Tritax Big Box REIT PLC has had its stock recommendation set at ‘HOLD’ by analysts at Liberum Capital.
Our model investment portfolios have included a long-term holding in Tritax Big Box REIT plc for a number of years. The company is the only listed vehicle dedicated to investing in very large logistics warehouse assets (Big Boxes) in the UK
Is Turkey's currency crisis about to go global?
Following a fall in the Turkish lira, India’s rupee has also dropped to an all time low, whilst the rand and peso have also plummeted, fuelling fears of emerging market rout.
The devaluation of the rupee has led to fears the 'Fragile Five' economies, comprising of Brazil, India, Indonesia, South Africa and Turkey which overly rely on growth fuelled by foreign investment, “may be again treated as one asset class by investors [which] could trigger further capital flight from the countries, sparking a contagion that could spread throughout global markets”, says the Daily Telegraph.
Highlighting the “spreading turbulence” among emerging markets, “the timing couldn’t be worse for emerging markets” says Market Watch, with many emerging economies already struggling with the prospect of trade wars, as well as a strengthening US dollar and rising US interest rates.
Eurozone growth upgraded after strong German performance
The eurozone economy expanded slightly faster than first thought in the second quarter of this year, bringing it level with Britain. Official figures showed that it grew by 0.4 per cent between April and June compared with the previous three months, the same as the UK and up from a previous estimate of 0.3 per cent.
Figures from Eurostat, the eurozone’s statistics agency, showed that this growth matched the rate in the first quarter, but was down from 0.7 per cent in the final three months of last year. Growth for all 28 EU countries rose by 0.4 per cent. The eurozone is the UK’s biggest trading partner so the strength of its economy affects demand for exports and has an impact on the economy.
Economists said the revised figure was due to strong consumer and government spending in Germany, which is the eurozone’s biggest economy. Germany expanded by 0.5 per cent in the second quarter. It has grown every quarter for four years, putting it on track for its longest expansion. The country outpaced France and Italy, which both grew by 0.2 per cent in the second quarter. The Netherlands fared even better than Germany, growing by 0.7 per cent in the second quarter because of a bounce back in trade.
The American stock market achieves its longest bull run in history
The longest bull run in American stock market history was confirmed on Wednesday (22 August 2018). The S&P 500 index, the broadest measure of the performance of big American companies, marked the record with a small fall of 1.14 points to close at 2,861.82, capping the 3,453rd day that it has been in bull mode.
Although there is no universal definition, a bull market is generally taken to be a period when the stock market climbs without suffering a drop of 20 per cent or more. The market may suffer several “corrections”, falls of between 10 per cent and 20 per cent, that are not deemed to have interrupted a bull run.
Of late, America’s technology industry has provided the fuel for the S&P 500’s exceptional run. Apple became the world’s first $1 trillion public company this month.
Our diversified investment portfolios have benefitted from this bull run, through our exposure to the US stock market via funds such as Fidelity American Special Situations, Jupiter North American Income & Schroder US Mid Cap.
The information in this blog or any response to comments should not be regarded as final advice. Please remember that the value of your investment can go down as well as up, and may be worth less than you paid in. Information is based on our understanding at August 2018.