Market Commentary – 15th February 2017

More strong data and continued frictions for Trump!

Over the past week, we have seen markets continuing to rise following more strong economic data, alongside the volatility index recording low levels indicating a lack of negative sentiment in the markets.

Over the weekend, President Trump met with Japan’s prime minister Shinzo Abe. During the visit, Trump backed Japan as North Korea fired a ballistic missile. He assured Abe “that the Trump administration will pursue a diplomatic resolution, but will put all [military] options on the table in the meantime”.

Trump is still having internal issues with his immigration policies, as the US Court of Appeals refuses to reinstate his travel ban. Despite this, he is continuing to challenge the issue. He was dealt another blow as his security advisor, Michael Flynn, resigned over his contacts with Russia. Flynn, who advocated a softer approach to Moscow and harder action on Iran, is said to have discussed US sanctions with the Russian ambassador before Trump took office and then misled officials about the conversation.

In the UK, a strong start to the year has seen the typical house price in England and Wales surpass £300,000, according to the Your Move house price index. Prices edged up 0.3% from December, or 3.1% from January last year, to £300,169. While the month-on-month increase is higher than in UK-wide reports from Nationwide and Halifax, the annual rate is slower.

Meanwhile, the Government declared that in the event of Parliament voting down any exit agreement with the EU, it would not seek further negotiations. Parliament will be faced at the end of the Brexit talks with a ‘take it or leave it’ vote, either supporting the deal on the table or pushing the UK into trading with the EU under WTO rules. This, however, did not dissuade the House of Commons voting by 494 to 122 to allow the Government to trigger Article 50 and begin the process of leaving the EU. The legislation will now move to the House of Lords, where the Government lacks a majority. But given the Lords’ unelected nature, it seems unlikely to frustrate the will of the elected House for too long.

Global Economic News                                         

In the UK, a very encouraging set of data for the production and construction sectors suggests that two of 2016’s struggling sectors finally turned a corner towards the end of the year. Industrial production rose by 1.1% in December, above the 0.6% pencilled in by the ONS in its preliminary estimate of Q4 GDP. This lifted the annual rise of industrial output to 4.3%, a near-six year high. The dominant manufacturing element was the prime driver of this growth, with output rising by 2.1% on the month. There was also better news from the construction sector. December delivered a 1.8% rise in output, the fastest for eight months.

CPI inflation accelerated from 1.6% in December to 1.8% in January. The pickup was largely driven by base effects related to falling food and petrol prices last year, with core inflation remaining steady at 1.6%. January’s acceleration was a little slower than anticipated, due to some unusual seasonal patterns in clothing discounting, but the overall picture is little changed with the CPI measure likely to pick up towards 3% as 2017 progresses.

In the Eurozone, GDP growth for Q4 came in at 0.4%, which was marginally lower than the 0.5% consensus estimate, with a year on year growth figure of 1.7%. The flash measure of German GDP growth for Q4 was 0.4%, with year on year growth at 1.2%.  Italian Q4 GDP growth came in at 0.2%, with year on year growth at 1.1%. This is the best annual gain since 2010.

It has been a relatively quiet week for economic data in the US since the last market commentary. The Initial Jobless Claims beat consensus estimates of 250k with a figure of 234k, down from 246k at the previous measure. The US Purchasers Price Index came in slightly ahead of consensus estimates, with figures at 0.6% month on month and 1.2% year on year. This is up from 0.3% in the previous month. US inflation and retail sales figures are announced tomorrow.


US Earnings – As of 10 February, (with 71% of the companies in the S&P 500 reporting actual results for Q4 2016), 67% of S&P 500 companies have beat the mean EPS estimate and 52% of S&P 500 companies have beat the mean sales estimate. Earnings Growth: For Q4 2016, the blended earnings growth rate for the S&P 500 is 5.0%. The fourth quarter will mark the first time the index has seen year-over-year growth in earnings for two consecutive quarters since Q4 2014 and Q1 2015.

UK & Non-UK Gilt Yields; Over the last week we have seen bond yields moving upwards and correspondingly valuations falling. This was the common theme across the UK, Europe and the US. The UK 10 Year Treasury yield advanced by 8 percentage points since the intraday low last Wednesday. This is in line with our view that, as economic data is pointing to an improving global economic situation, we expect to see a further strengthening of bond yields and a corresponding fall in valuations. As you can see volatility is still high in assets that should not be functioning like this, which is a further example of why we are not directionally investing into these assets.

GBP to USD/Euro/JPY;

Sterling has traded within a range of 1.24 to 1.26 against the dollar in the last week. Following today’s announcement of UK inflation data for January, sterling dropped back against the dollar from 1.253 to 1.246, before recovering slightly in morning trading. Lower than expected inflation figures weighed on sterling as it raised the possibility that the Bank of England may not need to react as quickly to raise interest rates, against the backdrop of underlying inflation pressures.

  • GBP / USD – Range 1.25 – 1.10 – Today 1.25
  • GBP / EUR – Range 1.20 – 1.10 – Today 1.18
  • GBP / JPY – Range 1.50 – 1.25 – Today 142

Oil Price;

Oil is up on the week and is trading at $53.50 for WTI Crude and $56.30 for Brent. Significant compliance with OPEC’s agreement to cut output has helped to buoy oil prices, despite the risk of US shale production ramping up and offsetting part of OPEC’s commitment to reduce global oil supply. Over the month, prices are broadly flat. Oil is still trading within our expected range of $50-60 / barrel.

Gold Price;

Gold has fallen back from its highs last Wednesday to $1,223 / troy ounce, mainly reflecting a more positive sentiment in the market. Gold is still well above the December lows of $1,130 / troy ounce and is considerably below the $1,350 level reached in September 2016. Gold remains range-bound for now. We do not expect much in the way of price movement and although it is a good diversifier, unless we see risks of a soft Brexit decrease and sterling fall, there is no gain to be made accepting it is a safe asset.  We are certainly not seeing any indicators of a risk off period, which is the purpose of this barometer.

Model Portfolios & Indices

Over the week, we have seen all the market indices that we cover advancing strongly. The Dow Jones hit another new high, surpassing 20,400 points, as did the FTSE 250 which passed 18,800 this afternoon. The other UK and US indices also performed well. European equities certainly stood out, with the broad Eurostoxx 600 index advancing over 2%, and the indices in France, Germany and Italy powering ahead. Japanese and Australian equities also fared extremely well and were the best performers over the week.

Bolstered by the broad-based strength in equities over the last week, all of the model portfolios have advanced strongly. Our directional exposure to UK mid-caps and Europe has made a positive contribution, along with global equities. Directional exposure to Asia Pacific (encompassing exposure to Japan and Australia) has also benefitted the portfolios from OBI 8 upwards.

We will continue to monitor the economic data and should things change that require our action, we will step in to act in your interests.

This day in History

On this day in 1903, toy store owner and inventor Morris Michtom places two stuffed bears in his shop window, advertising them as Teddy bears. Michtom had earlier petitioned President Theodore Roosevelt for permission to use his nickname, Teddy. The president agreed and, before long, other toy manufacturers began turning out copies of Michtom’s stuffed bears, which soon became a national childhood institution.

Reports differ as to the exact details of the inspiration behind the teddy bear, but it is thought that while hunting in Mississippi in 1902, Roosevelt came upon an old injured black bear that his guides had tied to a tree. (The age, sex and state of health of the bear remain contested.) While some reports claim Roosevelt shot the bear out of pity for his suffering, others insist he set the bear free. Political cartoonists later portrayed the bear as a cub, implying that under the tough, outdoorsy and macho image of Roosevelt lay a much softer, more sensitive interior.

As always have a great week and we will continue to watch and evaluate and if anything changes we will let you know.



Jason Stather-Lodge  CFP, MCSI, APFS
CEO & Founder
Chartered & Certified Financial Planner
Chartered Wealth Manager