06 Aug 2019
UK weekly commentary from BlackRock covering week highlights, what we’re thinking about the markets and what your clients may be asking this week.
Jeff Rosenberg, senior portfolio manager, Systematic Fixed Income portfolio management on the shift to lower interest rates
“The recent news from the Eurozone and the Fed news later this month are about the challenges of a slowing global economy and how central banks aggressively respond through zero-rate interest rate policies. We’ve had a bit of a reprieve from that in the US, but we’re going to start moving back in that direction. It’s just a reminder that this is a persistent low rate environment. Getting back to (an environment where it is possible) to find yield without risk at 5% isn’t going to happen.
“Initially it was about dealing with the successive crises – the US-focused credit crisis and then the Eurozone crisis. As we start to emerge from that, these longer-run structural issues started to become a more dominant feature. There was much more discussion about lower rates and the permanence of that, because of the structural issues rather than the cyclical elements.
“For investors, they need to change their portfolio mix or change their expected returns. If returns are going to be lower, the amount of risk investors take will need to go up…This is a realisation that many investors have come around to.”
In spite of low interest rates depressing the returns on cash savings, women in particular remain reluctant to invest: 66% of millennial women say ‘investing is not for people like me’, compared to 50% of millennial men. The BlackRock Investor Pulse survey shows that education would help:
A greater understanding of what investing could do for financial health, goals and life
German manufacturing and services purchasing managers indices (PMI) (July, flash) - German factory executives reported industry conditions in “free fall”, according to the Ifo Institute’s manufacturing survey. The group’s business climate index slumped to minus 4.3 in July, it lowest reading in nine years.1
US manufacturing and services PMI (July, flash) - US manufacturing grew at its quickest pace this year in June, led by rising production in the automotive sector. Manufacturing output was 0.4%, up from 0.2% in May.2
ECB rate decision - The central bank expects interest rates to remain “at their present or lower levels” at least through the first half of 2020, adding that it stood ready “to adjust all of its instruments” should the economy move lower. Investors took it as a sign that a rate cut could be on the horizon.3
US gross domestic product (GDP) (Q2, preliminary) - US economic growth slowed to 2.1% in the second quarter, but this was ahead of economists’ expectations for a 2% gain. Consumer spending drove growth higher, but business investment continued to be weak.4
Sterling fall – The UK currency weakened further on fears of a no deal Brexit. It is now on track for its worst month since October 2016.5
China manufacturing and non-manufacturing PMI (July) - After a period of weakness, Chinese manufacturing is set to rise to 49.4 from 49.5, though the non-manufacturing index is expected to fall to 53.8 from 54.2.6
Eurozone GDP (Q2, flash) - Eurozone is expected to continue its weakness with GDP growth expected to be 0.2% quarter on quarter.6
FOMC rate decision - The US central bank is expected cut rates by 0.25% in response to weakening global economic conditions.6
UK manufacturing PMI (July) - UK manufacturing has been weakened by Brexit uncertainty. The index is expected to rise to 49.2 from 48. UK Services PMI data is also revealed this week.7
Bank of England interest rate decision: no change in rates expected.7
The opinions expressed are as of July 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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