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6. February 2017 14:58
by Irene
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January 2017 - Market Commentary

6. February 2017 14:58 by Irene | 0 Comments

We welcomed 2017 and were greeted with political headlines by the dozen. Finally we have a new president in the United States and any hopes of a more moderate tone coming from the White House after President Trump’s inauguration were shattered very quickly. If Trump sticks to his economic growth election promises as much as some of his other more controversial promises then we should see growth in the US and the rest of the world. There is still some risk associated with that and while from a macro-economic point of view the global economy looks quite positive (global manufacturing PMI for example was at 52.7 in December, showing expansion), the risks on the horizon seem to be more of a political nature.

United Kingdom

Closer to home, Prime Minister Theresa May had to battle with her own political agenda – Brexit and whether she needs the vote from MPs or not, a NHS in crisis, and a visit to the US that seemed rosy for only a very short period of time. The answer to the Brexit vote is yes, which will mean some more discussions and amendments before Article 50 can be triggered with the EU. The markets still took it as a sign that Brexit will go ahead, with Sterling slightly up and the FTSE 100 slightly down since then. Over the full month, the FTSE 100 lost 60 bps and Sterling is up 1.9% against the Dollar. Still, the outlook for the UK economy, aside the Brexit risks, looks positive.

Europe

Election fever is slowly starting across Europe. France is already voting for its different party candidates and currently Mary Le Pen of the Front National is in front for the first round, but the odds are still low for a general win. The Netherlands and Germany will be voting as well this year and we might see Italy added to this mix after their constitutional court ruling with mixed results. This adds political risk, also for the United Kingdom, although Europe is looking good with stronger growth and higher inflation. <

United States

Donald Trump was inaugurated as the new President of the United States and already started with a flurry of controversial executive orders. All eyes will now be on his fiscal policies and whether he will keep his promises of extra jobs and be able to instil more growth into the economy. The question is also how much of that hope of increased fiscal stimulus is already priced into the markets.

Emerging Markets

Emerging Markets equities had been battered after President Trump’s election, but have regained some of these losses in January, in part due to the recovery in commodity prices. Brazil was the winner, returning 11.0% in USD (9.2% in GBP) and the MSCI Emerging Markets index returned 5.5% in USD. China released GDP growth numbers for the fourth quarter of 6.8% annualised, slightly faster than expected.

Fixed Income

The reflation theme, which had driven the appreciation of the Dollar and bond yields in the last two months of 2016, paused for breath in January. Treasuries were approximately flat and flows were more into higher yielding bonds like high yield and specifically also Emerging Markets bonds.

Commodities

Finally it was a fairly mixed month for commodity markets with metals outperforming and gold returning 5% in USD, but oil on the other hand down -2% (WTI Crude) on concerns of additional supply from the US.

Market Returns Overview


Source: Markit, Twenty20 Investments, as of 31 Jan 2017, all returns in GBP.

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