19 July 2016

The week in review

With significant news and data out of China, the UK and the US, last week offered plenty of food for thought much of which could have been introduced with the question, ‘do you want the good news or the bad news first?’

by James Godrich

Fund Manager

With both the US and the UK markets ticking marginally upwards though, investors look to have taken a net positive view on the week.

Chinese data saw GDP, Industrial Production and Retail Sales all come in surprisingly above expectations and offered investors some comfort in the stabilisation of the Chinese economy. Separate data last Friday though showed that Chinese banks issued ¥1.3tn (c. £150bn) in new loans throughout June. It seems as though Chinese growth continues to be credit led and although this economic stabilisation looks like good news on the face of it, we continue to see the metaphorical can being kicked down the road. With the Chinese debt/GDP last reported at 237% and growing, there remains the potential for bigger problems needing to be dealt with in the future.

On Thursday 14th we saw the surprise decision by the Bank of England to hold rates ste ady. The Monetary Policy Committee (MPC) seems to have taken the sensible decision that the economic data has yet to really suggest the slowdown that would require their immediate action and that the little ammunition that they have left might be better saved for a rainier day. As we have seen from the minutes of this meeting, the MPC members expect this rainier day to come before their August meeting though, where they have suggested that they expect monetary policy to be loosened.

Finally, last week we saw data from the US which showed an unexpected increase in retail sales growth and a robust inflation update, which showed the CPI figure holding broadly steady.  Following on from the previous week’s upbeat jobs report we are perhaps beginning to see the idea of an interest rate hike being put back on the table; the implied odds of a rate increase by the end of the year now stands at 43.2%, up from 37% on Thursday.

Much of the talk for nearly three weeks now has been about the EU Referendum, but the markets seem to be slowly and steadily coming to terms with this. As Brexit moves into the background we can start to look at the various opportunities and obstacles that arise from the latest global macro data as it begins to again drive the markets.

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