The FTSE World index nudged up by 1.2% during the month of August. Usually, the news flow becomes more subdued in the summer months, but in the UK and the US, politics has maintained its interest. Although the UK has not yet invoked Article 50 and hence set the timetable rolling to leave the EU, there has been much discussion about the possible outcomes for both the UK and Europe, as yet to be determined. In the US the Presidential election in November is fast approaching. Will Trump be an unexpected winner?
The FTSE All Share enjoyed another positive month with a gain of 1.9%. It appears that the worst immediate fears post the result in late June have not yet turned to reality. This certainly appears to be the case with the stock market. The FTSE All Share is up over 15% post-June 23rd (see chart above). Consumers continue to spend, perhaps a result of the low savings rates since Bank of England lowered the base rate to 0.25%, the first change in rates since 2009.
It appears that the worst immediate fears post the result in late June have not yet turned to reality.
Although some forward-looking surveys of the economy do suggest a slowdown in activity, at the moment there is little hard evidence that this is occurring. And with the fall in sterling post the vote, overseas tourists are now finding the UK a more attractive destination along with “staycation” locals.
Likewise, the United States rose by 1.5% in august resulting in a gain of over 21% for the year to date. The economy continues to generate new jobs (1.3 million, year to date) and the unemployment rate in below 5%, combined with some modest wage growth of 2.6%. Of perhaps more interest for the stock markets however, was the meeting of central bankers at Jackson Hole, Wyoming. In particular, the speech by Janet Yellen was much anticipated. She hinted that if new job figures continue to increase and inflation picks up, then yes the Federal Reserve will be inclined to increase rates but in the future, but she gave no specific idea of when. Perhaps her caution was justified given the economy just grew at 1.1% in the second quarter of 2016.
Despite a lacklustre economy, Japan’s unemployment rate fell to a 21 year low of just 3%. Offsetting this good news was the fact that the economy just grew at 0.2% to end June and that inflation remains the target of 2%. Earlier in the month another stimulus package was announced of $276bn. It includes spending on infrastructure projects and reconstruction of regions affected by the earthquake in 2011.
Year to date the Emerging markets have risen nearly 30%, outpacing Developed Markets. This month one of the leading emerging markets, Brazil, hosted the Olympics. Since the beginning of 2016, the mood towards Emerging Markets has significant changes. From being the dull laggard, performance is now up sharply and EM funds are enjoying strong inflows. China which is perhaps the mainstay of the sector saw its factory activity expand at the fastest pace in nearly two years. And although Brazil has just signed off on hosting the Olympics, it is again hitting the headlines with the impeachment hearing of its President Dilma Rousseff and her subsequent removal from office.
Similar to the UK there appears at the moment no serious effects from the June Brexit vote. Eurozone economic activity was at its highest level for 7 months in August. The Purchasing Managers survey (PMI) is an indicator of activity in both manufacturing and services. A PMI score of over 50 indicates growth of economic activity whilst below 50 indicates the economy is contracting. The August score in Europe was 53.3 up from 53.2 in July. However, inflation remains weak at just 0.2%.
The above Monthly Commentary by Simon Brett, Parmenion IM Director & Chief Investment Officer, was first published by Parmenion Investment Management on 8th September 2016
* All performance data quoted in this article is derived from FE Analytics
Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.