OCM Commentaries

Market Commentary – 13th December 2017

By December 13, 2017 October 8th, 2019 No Comments

All set for an even better year in 2018…

It’s been a relatively quiet week in the face of politics and as we have highlighted in our previous commentaries, the economic data which we should predominantly be basing our thesis on, is strong. The global economy is therefore not showing any signs of slowing down or losing momentum.

The acceleration in global activity is stronger than ever since the 2007/8 financial crisis. With this global reflation trend, equities continue to outperform with some reaching record highs and this is broadly seen in the emerging markets sector.

Europe continues to do well, despite this year’s euro strength. Europe’s strength was also noted by the manufacturing PMI which is at its second highest reading on record. This manufacturing resilience will eventually replicate itself into micro- capital expenditure (CAPEX) and firms investing towards sustaining growth, which is a positive. As the microeconomics strengthen, the macroeconomics will strengthen and the pace of growth we are noticing is sustainable for future investment. We hold directional investments in this sector, which is benefitting from the the outlook.

What to expect next year?

Over the course of this year, economists became progressively more optimistic about global growth prospects for 2017 and expect world GDP growth of 2.9% this year, a marked improvement on 2016’s disappointing 2.4% increase. Given the continued resilience of various timely activity indicators, as well as the broad-based nature of this year’s recovery, this momentum looks set to stretch into next year. This forecast by economists is for world GDP growth to accelerate further in 2018, picking up to 3.2%, which would be the strongest annual rise since the post-crisis rebound of 2010 and 2011. By contrast, the consensus is pencilling in only a 0.1% pick-up in world GDP growth next year. On balance, it is expected it to be a good year for firms, households and financial markets.

With global trade, the strength of global growth has been a key driver/ propagation mechanism behind this year’s upturn, with major exporting countries benefitting from the backdrop of this. The key message from the economic forecast is that trade growth will slow modestly next year. The winners from the continued strength of global trade will be those economies heavily integrated into global manufacturing supply chains. The most likely trigger for notably stronger trade growth next year would be a stronger cyclical upturn. On balance, we think that the most likely source of such a boost would be stronger investment growth.

With the global issue of inflation and wage growth weakness, it’s likely that this will be a key issue in 2018 too. One important driver of inflation trends over the next year is likely to be wage developments. Both the weakness of inflation and wage growth are expected to reflect several related forces that are both cyclical and structural in nature. Many factors that have held down wage growth can persist. One key puzzle is why wage growth remains weak, even in economies where unemployment has returned to pre-global financial crisis. A key factor behind this appears to be that the share of workers on temporary or part time contracts has increased, and average hours have fallen, implying that the headline unemployment rate understates the amount of labour market slack. This is consistent with a point made by Bank of England Deputy Governor Ben Broadbent in a recent speech, that, rather than flattening, the Phillips curve may have shifted downwards which is simply a fall in the structural unemployment rate, which will mean that a lower unemployment rate now be needed to generate a specific rate of wage growth.

As we highlighted in our previous commentary, economic risks have diminished over the past year and we seem to be in a low volatility stage of the economic cycle, however this is because investors’ sentiment is strong. The risk of a recession is low as we go into the new year.

For anyone who wants further data to substantiate the position please review the attached Global Economic News Document.

Model Portfolios & Indices

Over the last week we have seen most of the indices that we track justify the current equity rally and head upwards. Large gains have been made in the US and this region continues to surprise on the upside. Europe is also showing strong gains and benefitting our portfolios as we currently hold direct exposure in this region. Over the past week, our portfolios have strengthened and will continue to strengthen throughout 2017 based on the strong asset allocation, which is skewed towards the macroeconomic outlook.

Important Information

The data above will not directly correlate to the indices as there is always a delay in pricing, because the US markets close significantly later than the European markets and the Asian markets. The data set above reflects the last close and much of the day’s movements will not yet be reflected in the portfolios due to pricing delays. You cannot therefore directly correlate indices to the portfolios. The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guarantee of future performance. Performance figures quoted include the fund manager charges but exclude other fees such as adviser, custodian, switch and/or discretionary investment management fees. Unless otherwise instructed and accrued, income is reinvested into the portfolio.

This Day in History

On this day in 2000, George W. Bush won the presidential election which brought him into the white house. Mr Bush is an American politician who served as the 43rd President of the United States from 2001 to 2009. He was also the 46th Governor of Texas from 1995 to 2000. After graduating from Yale University in 1968 and Harvard Business School in 1975, he worked in the oil industry. He became the fourth person to be elected president while receiving fewer popular votes than his opponent.

As always have a wonderful week and stay safe.


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