Market Outlook Report – June/July 2018

Market Overview

June/July 2018

FTSE clocks up strongest quarter for five years
London’s leading share index recorded its best quarterly performance in five years despite fears of an all-out trade war between the United States and China, but the pound suffered its weakest period since the Brexit vote.

The FTSE 100 closed 21.30 points higher at 7,636.93 last week, which took its rise over the previous three months to more than 8 per cent, its best showing since the first quarter of 2013.  The index finished June 0.5 per cent lower, breaking a two-month winning streak.

John Wraith, head of UK rates strategy and economics at UBS, said one of the reasons that the FTSE 100 has been performing so well lay in the recent strength of the dollar against sterling.  Companies in the index generate about 70 per cent of their earnings overseas, including in dollars, and their share prices tend to do well when the American currency is strong.

Mr Wraith said that the markets were still concerned about a trade war between the US and China, but said that Britain would not particularly suffer in the fallout.

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Summer rate increase on the cards after growth upgraded 
The economy is growing at a faster rate than first thought, according to figures that caused sterling to jump this week, as markets bet on the likelihood of an interest rate rise in August. Also, the UK services sector is growing at its fastest rate since October last year, suggesting the economy may be strong enough for the Bank of England to rise interest rates next month.

Growth is on track to accelerate to 0.5 per cent in the third quarter as the economy enjoys a broad rebound, with the services, manufacturing and construction sectors all picking up, according to the National Institute of Economic and Social Research ('NIESR').

This rate rise expectation is despite pessimism about the long-term impact of Brexit being at its highest level since the referendum, and households running down their savings at record levels in order to maintain their levels of spending, as consumers continue to feel the strain of rising prices and sluggish wage growth.  A survey by the Federation of Small Businesses found that confidence among the 4.8 million self-employed Britons fell significantly over the past year.  Meanwhile, debt levels among Britain’s listed companies have hit an all-time high as they loaded up on credit to pay dividends and make investments during a period of weak profitability, according to research.

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US-driven Global Trade War
America's largest business group has called on President Trump to reverse course on his aggressive international trade policy before he triggers a full-blown trade war that directly threatens 2.6 million jobs.

In a rare intervention, the US Chamber of Commerce, which is typically pro-Republican, has launched a campaign against the administration’s protectionist trade tariffs by detailing potential job losses in US states that were key to the President’s election victory.  The chamber believes 2.6 million jobs are threatened by the Trump administration’s trade policies. Retaliatory tariffs have already been placed on about $75 billion of American goods so far.

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Falling Inflation 
During May, official inflation figures came in below expectations. The annual consumer prices index dropped to 2.4 per cent in April from 2.5 per cent in March, undershooting forecasts that it would be unchanged.

The Office for National Statistics said that it was the lowest reading since March last year, when inflation was surging due to the currency's collapse after the Brexit referendum.

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Empiric Student Property PLC
The recent release of a Trading Update & Notification of  Director & Management Change earlier this month has prompted a recovery in the share price of Empiric Student Property PLC.

Empiric Student Property continues to make good progress on delivering financial and operational improvements across the business according to its latest trading update.  Bookings for the 2018/19 academic year are continuing to progress well and are currently at 76 per cent compared to 63 per cent at the same time last year, and up from 57 per cent as announced by the Company on 25 April 2018.

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Emerging Markets
After two years of strong returns following an interest rate hike by the Federal Reserve in December 2015, emerging markets have had a tough time so far this year.  But Ashmore Group's head of global research Jan Dehn says this is not down to emerging markets (EM) themselves.  Dehn said the increase in the dollar has caused investors to sell off their emerging market assets.

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UK funds that have made the highest number of months with positive returns over the past 10 years.
UK mid- and small-cap focused funds dominate the top of the list for portfolios that have made positive returns in the most months over the past decade, according to FE Analytics.  Over the last 10 years the mid-cap sector has been the place to be, with the FTSE 250 more than doubling the returns of the large-cap FTSE 100 index.

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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 June 2018.