18 Jul 2019
“The key thesis of our investment of our investment outlook is that we would encourage investors to use the time that central banks are buying us by embarking on an easier monetary policy stance, to build more resilience into portfolios. We are in a situation where rising trade tensions are creating some macro uncertainties and a wider range of outcomes going forward. This is an important opportunity to fortify portfolios for what might come.
“There are two new factors that have changed our view. One was that we realised it wasn’t really late cycle concerns, such as how far away are we from the next downturn in the US that is driving markets, but instead geopolitical tensions and in particular, trade protectionism and these are here to stay. The second is the very material dovish pivot on the part of central banks. It’s no more normalisation of monetary policy, but actually reversing some of the normalisation that has already happened.”
Nevertheless, political uncertainty does not feature highly in investors’ list of concerns, according to BlackRock Investor Pulse data.
UK services purchasing managers indices (PMI) - IHS Markit’s services PMI for June dropped to 50.2 from 51 in May, marginally below expectations of a reading of 50.6. The data prompted fears that the UK economy may have slipped into contraction in the second quarter. 1
UUS services PMI - June survey data indicated a marginal increase in business activity across the US service sector. The growth was ahead of May’s recent low, but was still among the weakest over the last three years. The index registered 51.5 in June, up slightly from 50.9 in May. 2
Eurozone retail sales - Retail sales in the Eurozone unexpectedly fell for the second month in a row in May in continued signs of weakness for the region’s economy. The volume of retail trade fell by 0.3% in May compared to April, against expectations of a rise of 0.3%. 3
UK retail sales – Experienced their worst June on record, according to the British Retail Consortium. Total sales fell 1.3% year-on-year in June, although figures from the previous year had been buoyed by good weather and the World Cup. 4
UK Currency - The pound touched two-year lows against the Dollar as markets reacted to Brexit uncertainty and slowing sales at UK retailers. Economists are now forecasting a contraction in the economy in the second quarter. 5
The US labour market – The US economy created many more jobs than expected in June. It added 224,000 jobs, many more than the 160,000 that economists had forecast. 6
1 Fears grow for UK economy after weak services sector data, FT, July 2019
2 Subdued growth of business activity continues in June, Markit, July 2019
3 Eurozone retail sales see surprise fall in May, CityAM, July 2019
4 Retail sales suffer ‘worst June on record’, says lobby group, FT, July 2019
5 Pound heads for two-year low as holidays begin, BBC, July 2019
6 US labour market booms in June, BBC, July 2019
China inflation (June) - Year on year inflation in China is expected to be 1.8%, down from 2.7% in May. 7
UK GDP (May) - Growth is expected to be 1.4% in May from 1.3% the previous month. The three-month average is expected to bounce back, rising 0.4% from -0.4%. However, recent PMI data has suggested a gloomier picture. 7
US inflation (June) - prices are expected to rise 1.7% year on year from 1.8%. The core consumer prices index (CPI) is due to rise 0.2% month on month and 2% year on year. The figures are expected to show that inflation remains well-contained, giving the Federal Reserve some leeway on rates. 7
UK Wages and earnings - Wage growth beat market and economist expectations in the three months from February to April and has been the one bright spot in the otherwise deteriorating UK economy. 8
US retail sales - Retail sales in the US have been buoyant, rising 0.5% last month as households bought more motor vehicles and a variety of other goods.9
7 IG Index, Week Ahead, July 2019
8 UK wage growth faster than expected, BBC, June 2019
9 US retail sales rose in May, while April was revised higher, CNBC, June 2019
The opinions expressed are as of June 2019 and are subject to change at any time due to changes in market or economic conditions. The above descriptions are meant to be illustrative only.
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