23rd December 2014
US Economy Continues to grow
Annualised US GDP growth grew at its quickest rate for 11 years after revised data from the Bureau of Economic Analysis showed the economy expanded by 5 per cent in the third quarter of 2014.An astonishing rate. Faster consumption growth has led to upgrades in third and final quarter estimates for GDP growth by over 1% and according to market participants Capital Economics the outlook “remains rosy” going into 2015.
16th December 2014
Oil stocks hit hard in year end sell off
The morning after Russia surprised us with an interest rate hike from 10.5% to 17%, global equity markets have continued to sell off with the characteristic indiscriminate selling similar to that which we saw in October. This month, however, oil stocks are by far the biggest fallers by sector. The FTSE All Share Oil and Gas producers have fallen 15% in one month with the Service and Equipment sector falling an astonishing 29%. Mining stocks have fallen 16%. TAM equity portfolios have very little exposure to these sectors and relative performance against the FTSE index has been remarkably strong this month, contributing to another good year of performance. We remain positive on equities and, as we said at the beginning of the year, are watching markets very closely today for any investment opportunities as they present themselves.
15th December 2014
The week ahead
The Bank of England will deliver the minutes of the last meeting where they elected to keep rates on hold at 0.5%. The split in the voting is expected to remain at 7-2 in favour of keeping rates on hold with just committee members Weale and McCafferty voting to raise rates. UK inflation data is out on Tuesday and is expected to fall to 1.2% from 1.3%, raising the possibility that the figure could fall to 1% in the coming months. UK unemployment is expected to fall again to 5.9% from 6.0% and earnings growth is expected to improve to 1.3% annualised pace from 1.0%. In the USA, we will get the details of the Federal Reserve’s policy announcement where there has been heavy scrutiny of the change in language. However, we believe the market has fully priced in the new rhetoric which remain cautious on the outlook and not indicative of an imminent rise in base rates.
2nd December 2014
Eurozone manufacturing worse than previously thought
The manufacturing purchaser’s index (PMI) for the eurozone fell to 50.1 in November compared to 50.4 in October which it was expected to match. The figure is a disappointment and is also a concern coming in fractionally above the level of 50 that indicates growth. The breakdown of the figures showed contraction for Italy, Germany and France, all of which were under 50 and the first time in 1.5 years that the three largest economies have experienced simultaneous downturns. It is also concerning that the poor performance is down to the core eurozone and not being dragged down by the periphery. Indeed, Spanish PMI came in surprisingly strong at 54.7 compared to 52.6 in October.
18th November 2014
Markets still believe whatever Mario says
ECB President, Mario Draghi, gave global markets an additional boost with his carefully crafted hints that Eurozone QE is just around the corner. As he testified to the European Parliament, he said “Other unconventional measures might entail the purchase of a variety of assets, one of which is government bonds.” This would be a major ramp up in stimulus operations which already have lofty ambitions at EUR 1 trillion but lacking a target market capable of swallowing that amount of buying. Nevertheless, speculation is now rampant about which sovereign bonds might be targeted, and the associated downward pressure on yields is superficially good for equities in Europe and beyond, particularly the UK. The FTSE 100 extended it's recovery from the October lows to close over 6,700.
12th November 2014
Japan hits 7-year high on snap election speculation
There was some speculation overnight that Japanese prime minister, Shinzo Abe, will return from his overseas trip to APEC and G20, on the 17th November and announce a snap election, possibly on December 14th. This would set in place a new 4-year term and it is widely expected that Abe would immediately push for a delay to the second scheduled rise in consumption tax next year, following the first rise from 5% to 8% in April which knocked GDP and consumer confidence. Notwithstanding the fall in his popularity as a result, it is also a calculated gamble to capitalise on the opposition’s single digit ratings. The Nikkei 225 share index rose sharply to a new 7-year high and closed at 17,197.05
11th November 2014
US jobs data improves but markets not biting
The headline US payroll data showing a monthly addition of 214,000 new jobs in October fell slightly short of expectations of 230,000, but the upward revision of an additional 31,000 jobs in September made amends. Stock market reaction was muted, possibly owing to the 11% gain from the low of the October sell off, but the economic news is still good when you combine it with the associated fall in the unemployment rate from 5.9% to 5.7% and the fact that the labour participation rate rose to 62.8%. The Fed and the markets assess both these numbers in conjunction to get a reasonable idea of what is happening and, whilst this is all going well, we do not expect the central bank to raise interest rates until there is a pick up in real wage growth.
5th November 2014
US Q3 earnings update
We close to wrapping up the Q3 earnings season in the US. Of the 500 S&P stocks, 362 companies have reported earnings to the end of Q3. 78% of them have come in better than expected having beaten the consensus forecasts. This is the best ratio since Q2 2010. 59% have beaten sales estimates. So far, this implies a growth rate of 7.2% which is marginally better than we expected (7%). By sector, the area which is struggling is consumer discretionary but which may get a boost from falling oil prices. For Q4, 46 companies downgraded their earnings forecasts, mostly commodity related companies, and 18 have upgraded. This puts the S&P500 12 month forward PE ratio on 15.5x earnings which is above the long term averages.
3rd November 2014
The week ahead
The Bank of England is expected to keep interest rates on hold again at the meeting on Thursday. The last vote to keep interest rates on hold was split 7-2 in favour of keeping rates on hold. Martin Weale and Ian McCafferty were the first to vote for a rise, but have long been considered hawks. If Andy Haldane follows suit, we would expect Gilts yields to rise significantly as it would leave only 2 doves battling for the middle ground of opinion. Market consensus for the next rise has been moved to Q3 2015. The ECB will also announce their decision on Thursday and we will see whether the bank has plans to extend their bond buying to other forms of asset backed bonds and loans.
31st October 2014
TAM Finalists in Sustainable Investment Awards 2014
TAM Asset Management has been announced as a finalist in the Investment Week Sustainable Investment Awards 2014 in the category of Award for Innovation. TAM has been nominated for its innovative You Give, We Give scheme, which allows investors to make donations to their chosen charity though their portfolio gains, with donations matched percentage for percentage from TAM’s annual management charge. Lester Petch, TAM CEO, remarked “TAM has built a reputation for innovation in the asset management arena; this award is further recognition of that from the industry itself. Through You Give, We Give we allow investors and managers interests to be completely aligned in supporting good causes”. The award ceremony will take place at the Le Meridien Piccadilly Hotel in London on 26th November. Link to original article: http://events.investmentweek.co.uk/sustainableinvestmentawards/static/finalists
31st October 2014
BoJ surprises with boost to QE
The Bank of Japan surprised markets with an announcement that they had voted 5-4 to significantly increase their monetary stimulus, boosting the target level from 65 trillion Yen to 80 trillion, nearly £500 billion. They also decided to increase their purchases of government bonds targeting long dated bonds in particular. The Nikkei 225 index immediately jumped 3% on the announcement but there was more good news to come from the Government Pension Investment Fund, the largest retirement fund in the world. Speaking a few hours on from the Bank of Japan announcement, the GPIF, said that they would be increasing their allocation to equities from 12% up to 25% whilst lowering their allocation to bonds from 60% down to 35%. The change boosted the Nikkei 225 index even higher and ended the day up 4.8%, its biggest one rise since June last year.
31st October 2014
Surprisingly strong U.S. Third Quarter GDP boosts stocks
The US economy was surprising strong in the third quarter, growing at 3.5% against market expectations of 3.0%. The boost came from a £30 billion increase in defense spending which is the highest since 2008. The narrower trade deficit also made a contribution as imports fell and exports rose despite rising US dollar. The US stock market rose 0.25% to 1,986.45, edging closer back up towards the record highs of September.
27th October 2014
The week ahead
The big event of the week is the meeting of the Federal Reserve’s Open Market Committee (FOMC) where it is expected that they will formally announce the end of the third round of the quantitative easing bond program, also known as QE3. The stimulus has been wound down at a rate of $10 billion a month since the beginning of the year and has gone exactly as planned until recent weeks after calls for it to be extended. The committee will also give their assessment of the economy. US GDP will be announced on Thursday, estimated to be +3%. German inflation figures, also Thursday, are expected to be weak with -0.1% fall from last month.
22nd October 2014
Anticipation of ECB bond intervention boosts markets
Global equity markets enjoyed another positive day yesterday as rumours circulated that the European Central Bank was considering stronger action to boost the European economy and ward off any deflationary spiral. Speculation that the ECB was readying a plan to buy corporate bonds which would help banks free up more of their balance sheets for lending was a positive catalyst for equity marks. In the US the technology heavy Nasdaq 100 surged 2.6 percent, its biggest one day gain since early 2013, as Apple beat analyst expectations reporting Q3 earnings 13 percent higher than the same period last year.
17th October 2014
Although volatility has picked up we still see value
Investor sentiment has quickly soured over the past weeks as markets fall back from near all-time highs to trade at more depressed levels. Although many factors have combined to cause this shift; weak economic data in the US and China, ISIS and renewed military action in the Middle East, protests in Hong Kong and even the growing threat of Ebola; maybe the most significant is the fractured state of the Euro zone and the failure of the ECB to find any consensus on how to solve their worsening economy. With the current fluid state of markets we are constantly monitoring the situation ready to react should our strategy necessitate. Positively we are now seeing significant pockets of value in equity markets and believe our selection of stock-picking focused managers are the most efficient method of accessing it. Whilst we are keeping our equity positions relatively unchanged we anticipate an increase in exposure once markets show sustained signs of stabilisation.
16th October 2014
Stocks recover from intraday lows
Despite another fall of 0.8% in the US stock markets overnight, stocks bounced back up from intraday lows that saw the S&P 500 Index down as much as 3%, a level that would've erased this years gains. Federal Reserve Chair, Janet Yellen eased some fears as she reiterated the central bank forecast that the US economic recovery is on tracks although the Empire State index indicated that economic growth had retreated from 5 year highs. Retail sales also disappointed. Although this data was itself unremarkable, market sentiment is fragile as it looks for signs that the sell-off is overdone.
10th October 2014
Equities fall further despite interest rates on hold
The Bank of England surprised no one with their midday announcement that they had voted to keep interest rates on hold at their record-low level of 0.5% and that the QE program would be maintained at current levels. The two members of the committee who voted for interest rate hikes are still there but it is evident that other members are not easily moved from their position of keeping rates lower for longer. The FTSE was unmoved immediately after the news itself but was lower still owing to growth fears as Federal Reserve chair, Janet Yellen, indicated that the US economy is not ready for rate rises and fears linger over the slowing of the German economy and news that the Ebola virus has entered Europe.
7th October 2014
European markets fall on poor German industrial production
European stock markets opened lower in reaction to weaker than expected industrial figures in Germany. The 4% drop for industrial production in July was far worse that the consensus forecast of a drop of 4%. It is clear now that the impact of Russian sanctions is having a deeper and more meaningful impact than many had expected. Company announcements yesterday highlighted severely weaker orders in construction and machinery. However stock market losses are limited because what initially appears as bad news could be good news in so far as it heaps additional pressure on ECB president Mario Draghi to finally announce a programme of quantitative easing which would be undoubtedly good for stock markets.
3rd October 2014
European Central Bank Disappoints
Although ECB President, Mario Draghi, said that covered bond purchased would start this month he refused to put a value on the size of purchased that they plan to make. This omission, strange in itself in an age of growing central bank transparency, was enough to spook investors and weighed heavily on European equity markets yesterday. Indeed the UK FTSE 100 posted its biggest one-day fall since January and the eurozone suffered the steepest one-day decline in fifteen months. There are, of course, many other issues weighing on markets; Ebola, air strikes in Iraq and Syria just to mention two. Eyes will now be focused on the US employment figures released later today.
19th September 2014
Stocks and Sterling surge as Scotland says No
Scottish voters have rejected independence from the UK. By 8:15am when all 32 council areas had declared, the No vote had secured 55.3% against 44.7% for Yes. The FTSE 100 index opened up +0.6% higher at 6,863 with banks and financials leading the way together with Scottish based companies that investors viewed as vulnerable in the event of a “Yes” vote. Sterling jumped +0.4% to around 1.646 to the US dollar, having been recently as weak as 1.61. The 10-year Gilt yield rose a point to 2.59% reflecting brighter prospects for a united Britain. Speaking outside No.10 just after 7am, Prime Minister Cameron was visibly delighted but will have to manage the inevitable finger pointing in the aftermath of a vote what was rather close for comfort and by a margin that was unimaginable a year ago.
15th September 2014
Busy week ahead for UK, US and Europe
The UK will be transfixed by the Scottish referendum this week which, over the weekend, tilted back in favour of the “no” vote, where the bookies have remained throughout. But there are noteworthy events elsewhere. In the US, the Federal Open Market Committee (FOMC), who make the key decisions on interest rates and monetary stimulus, will meet Wednesday. There appears to be a strengthening of opinion within the committee in favour of raising rates sooner to avoid higher rates in the future. The resulting speech by Federal Chair, Yellen, will be carefully scrutinsed by markets, particularly Sterling traders. We will also see detail of the European Central Bank’s ambitious loan buying program.
8th September 2014
Heavy falls for Sterling as Yes vote lead in new poll
The latest poll conducted by YouGov showed that the campaign for Scottish independence had marginally overtaken the No vote for the first time this year by any pollster. However, the poll stripped out the “Don’t know” element and varied dramatically from the YouGov poll they conducted a month ago showing the No campaign 22% ahead. However, market confidence was perhaps undermined by George Osborne hurriedly offering “a plan of action to give more powers to Scotland” and Sterling dropped to 1.6125 against the US Dollar, its lowest level since November last year.
5th September 2014
Euro falls sharply as ECB cuts interest rates
ECB president, Mario Draghi, surprised markets with an unexpected interest rate cut taking the benchmark rate down 10 basis points to just 0.05%. The overnight deposit rate, the rate which depositors get for parking money at the ECB, was cut to a negative rate of 0.2%. The Euro, which had already fallen from 1.36 to 1.31 over the summer, fell another 1.6% on the news. European equities rose to levels not seen since January on the expectation that this effort to stimulate the economy can only be a good thing. The policy move was also accompanied by the unveiling of plans to buy covered bonds and asset-backed securities. This falls short of the full blown quantitative easing that many had hoped for, perhaps reflecting continued German political resistance to the idea.
4th September 2014
FTSE 100 Index hits 14-year high as GDP revised higher
With signs that some resolution between Ukraine and Russia may be close at hand, the FTSE 100 index of leading UK shares hit a 14-year high of 6,873.58, the highest since December 1999. The move higher was also boosted by good news for the UK economy where survey data showed that the service side of the economy is the strongest it’s been in 10 months. Having been the main driver of growth this year, this improvement in activity bodes well for GDP which itself has been revised higher by the Office of National Statistics who now believe that not only was growth stronger than previously thought in every year since 2008, but that the economic downturn ended last year.
27th August 2014
US equities rise despite cautionary Fed comments
London was closed for the August bank holiday Monday but stocks in the US moved higher following comments from Federal Reserve Chair, Janet Yellen. Her speech was more hawkish than expected and warned that if unemployment continued to fall faster than expected then markets had to be prepared for interest rates to rise. However, this comment alone does not address the real problem which is quality of jobs rather than quantity and the markets are aware that earnings are not improving in line with company profits. Of greater significance was the speech from Mario Draghi, president of the ECB, who appeared to make a critical step towards quantitative easing over concerns that eurozone deflation is a real possibility. The S&P500 index of leading US shares rose on this news, breaking the psychological barrier of 2000 points.
20th August 2014
Bank of England split vote on interest rate hike
Following on from last week’s decision to keep interest rates on hold at 0.5%, the Bank of England released the minutes of the vote held by the nine members of the policy setting committee. For the first time in 3 years, the vote was not unanimous and showed a 7-2 split with two members, Martin Weale and Ian McCaffety voting to increase the base rate by 0.25%. Sterling strengthened on the news although it was expected that Martin Weale would vote for the rise leading to an 8-1 split. Ian McCafferty is considered to be the next most hawkish member, followed by Andy Haldane who voted, this time, to keep rates on hold. A 6-3 split next time would make things interesting as it would bring the vote right to the four members who are considered to maintain a balanced view – none of whom count amongst their number the biggest dove of them all, Governor Mark Carney
18th August 2014
The Week Ahead - Watch the central banks
With markets recovering from Friday’s false reports of a Ukrainian strike on a Russian convoy, the Bank of England and US Federal Reserve will be the focus of attention this week. The B of E minutes will show any split in the vote whether to maintain or raise interest rates. The Fed minutes will probably confirm that the tapering schedule is still on but of greater interest will be Thursday’s summit of central bankers at Jackson Hole in the USA where Fed Chair Janet Yellen’s speech on labour market utilisation will be closely scrutinised for clues that she continues to believe that the poor quality of recovery in employment data justifies keeping rates lower for longer.
14th August 2014
European Growth: When bad news can be good
As the UK and US economies gather momentum positive economic data is welcomed with trepidation as investors fear it will quicken the pace of QE tapering and force interest rate hikes sooner rather than later. However the situation in Europe is completely different, bad news, such as today’s poor GDP figures from Germany and France, not only confirm that Europe is slowing down but importantly will put pressure on the ECB to extend their asset purchase program thus pumping further liquidity to markets. And as we know liquidity can be very positive for equity markets; so bad news can be good.
7th August 2014
Markets uneasy as tensions rise in Ukraine
UK and European stock markets slipped further today as tensions rose between the West and Russia and reports of the deployment of 20,00 Russian troops stoked fears that things could escalate dramatically in the next few days. Nato reported that the troops are at battle readiness and backed by heavy vehicles marked with peace-keeping labels indicating that an invasion would come in the guise of a humanitarian mission. The Kremlin also announced a full embargo on food imports from the EU and USA. News of Italy slumping back into recession with Q2 GDP falling 0.2% against expectations of +0.1% growth. Q1 GDP was -0.1% and there is a growing feeling that recovery will be severely hampered if relations between the EU and Russia worsen.
6th August 2014
UK banks downgraded by Moody's
Moody’s credit rating agency has downgraded its outlook for UK banks from stable to negative warning that the removal of government support and outstanding litigation issues will weigh on banks profitability and have increased the risks borne by creditors. Despite an acknowledgement that the UK economy has improved and continues to do so, Moody’s senior analyst said that this would not be enough to offset the negatives but also added that the baseline credit assessment of most UK banks continues to be stable. The news came on the same day that HSBC’s chairman warned of a growing danger that over regulation is stifling bankers willingness to take the necessary risks to compete and run profitable business.
31st July 2014
UK GDP +0.8% in Q2 puts economy back to pre-Lehman level
UK GDP increased by 0.8% in the second quarter of the year bringing the year-on year figure to 3.1%. These figures were in line with the consensus estimates and puts the economy at a level which is 0.2% higher than the peak way back before the Lehman crisis in Q1 2008. Chancellor George Osborne played down the historical significance of the figure saying that there was plenty more to do, perhaps conscious of the recovery being almost entirely due to the service sector compared to stagnant production and construction. However, this is broadly positive data and keeps the UK among the best performers in G7 without putting pressure on the Bank of England to raise interest rates, particularly in the absence of evidence increasing wages.
1st August 2014
Global stock markets suffer declines
The technical default on bond payments by Argentina, data flow in the U.S. is suggesting that the Fed may have to raise interest rates sooner rather than later, and concerns that stock markets are overvalued finally soured investor sentiment yesterday and global equity markets sold off. Up until then and in the face of numerous geopolitical risks and events markets had maintained their composure with many pushing to new all-time highs. We have written before that ‘bull markets climb walls of worry’ and we view this latest move as an opportunity rather than the start of any prolonged downward move.
31st July 2014
US Fed On Interest rates And GDP
The Federal Reserve gave a rosier assessment of the US economy while reaffirming that it is in no hurry to increase interest rates. Janet Yellen is stepping up a debate over when to raise interest rates for the first time since 2006 as unemployment falls faster than expected and inflation picks up toward their 2% goal. Gross domestic product grew at a 4% annualised rate in the second quarter, well above the 3% rate that had been expected and a sharp reversal from the weather-impacted first quarter, when the economy contracted a revised 2.1%.
18th July 2014
MH17 and Gaza
The downing or otherwise of the Air Malaysia airliner in Eastern Ukraine has sent an initial wave of concern around financial markets with most major Equity markets making modest initial losses. In the US as much attention was paid to the Israeli incursion into Gaza as an escalation of that domestic conflict hit the headlines. Neither will derail the global economic recovery presently underway but will of course prey on the sentiment of financial markets and we expect to see a few days of market volatility but unless there is a significant expansion of the two conflicts as a result we anticipate no change in our market expectations.
30th April 2014
FTSE boosted by acceleration in UK economy
The FTSE 100 Index moved decisively above 6,700 as UK GDP figures showed the economy grew at 0.8% in the first quarter, up from 0.7%. This was slightly less than consensus forecasts of 0.9% and seemed to reliant on the contribution from services and consumer spending but the figure still caps off a good month for Chancellor George Osborne who has also seen unemployment falling to a 5-year low and inflation falling to 1.6%.
15th July 2014
UK inflation on the up at +1.9% in June
UK inflation data showed a bigger jump than expected by the City at +1.9% in June. The consensus forecasts were around 1.6%. This represented the biggest monthly jump since October 2012 and was pushed up by clothing, footwear, food and soft drinks, perhaps reflecting a seasonal effect from the warm weather. The big hike in inflation saw the 10-year Gilt yield rise from 2.60% to 2.65%. This is still a low rate, however, and doesn’t really indicate a major shift in expectations as to when real interest rates will rise. But it is an interesting development and is something to watch closely in the midst of US earnings season and central bankers lining up key speeches ahead of the holidays.
11th July 2014
US earnings season underway
US stocks eased off from new highs as the second-quarter US earnings season got underway. Alcoa, the aluminium producer, was, as it always is, the first to announce results. They were well received and the shares were up over 5%. However, there is a cautious mood in the air because the equity markets are pricing for, and expecting, around 5.4% earnings growth annualised for Q2; up on 3.4% for Q1. So the stakes are a little higher given that valuations are around 18x on a price/earnings ratio basis. Morgan Stanley published a new target for the S&P500 of +4% higher but over in the UK and Europe, markets looked fragile as Espirito Santo Financial announced suspended trading in its shares and bonds due to financial difficulties.
26th June 2014
US first quarter GDP revised down to minus -2.9%
The US economy shrank -2.9% in the first quarter according to revised figures out yesterday. The fall was far larger than the figure of -1.8% expected by the market and reflected a bigger impact from the severe cold weather which hampered economic activity and private consumption in particular. The S&P500 equity index initially fell on the news but rebounded into positive territory as The second quarter is expected to show a large rebound. Also, the GDP data is hard to reconcile with a broadly positive company earnings reporting season where 68% of earnings beat their forecasts and rose 6% overall. If anything, the weaker GDP revision may also give the Federal Reserve pause for thought and possibly pushing back the point at which they may raise base rates.
19th June 2014
Don’t Fight the Fed!
The US Federal Reserve gave us two reasons to be cheerful yesterday. First they see the US economy continuing to grow, but secondly and importantly they do not see this as an ‘overheating’ situation despite gains in the equity and property markets intimating that they will keep interest rates at current levels into 2015. They trimmed their bond-buying by $10 billion for a fifth straight month with the accompanying statement “Economic activity is rebounding in the current quarter and will continue to expand at a moderate pace thereafter,” and that they expect interest rates to stay low for a ‘considerable time’ after the bond-buying ends. The US S&P500 equity closed up 0.75% at a new all-time high following the upbeat statements.
13th June 2014
Carney and Osborne raise prospect of earlier rate hike
UK 10-year Gilt yields moved decisively back up to levels last seen over a year ago touching 2.79% at one point. The spread over their German equivalent, Bunds, rose to the highest level since 1997 to 1.37%. The cause of the move was attributed to Bank of England Governor, Mark Carney, who used his Mansion House speech to say that interest rates could move higher earlier to match the unexpectedly good improvement in the UK economy. There is also the clear message that interest rates are seen as a weapon to be used against house price inflation. George Osborne also gave an upbeat assessment of the economy on the same evening. We believe that the central view, both the Chancellor and at the Bank, is that stock and bond markets may have greater tolerance for an interest rate increase before the election if it can be seen as evidence that all is well with the economy.
4th June 2014
Slumping eurozone inflation heaps pressure on ECB
More pressure was heaped on ECB president Mario Draghi to act as eurozone inflation fell to 0.5%, down from 0.7% in April. The markets had been expecting little change from April. Eurozone Bond yields jumped up on the news as the low figure makes almost certain that the ECB will announce a move to negative interest rates and raises hopes that further stimulus measures will be considered in the forward looking statement to be announced on 5th June. The 10-year Gilt yield was also dragged upwards by eurozone yields and recovered from their recent low of 2.65% to stand at 2.70%.
30th May 2014
Equities push to new highs even as US GDP tumbles in Q1
Market consensus was expecting US GDP to grow modestly by 0.1% in the first quarter and so the news of a minus 1% drop came as somewhat of a surprise. However, expectations were already curtailed owing to the severe winter weather and the main reason for the fall was a bigger than expected reduction in inventories which would’ve dampened production demand. As this will likely bounce back in the second quarter, the equities in London and New York moved back towards the highs and bond yields fell to new 10-month lows ahead of the key ECB meeting next week which appears to have galvanised market attention.
27th May 2014
Mainstream political parties rattled by EU elections
UKIP’s success in the UK’s European elections mirrored a surge in eurosceptic trends across Europe. Populist parties in France, Netherlands, Spain and Greece all chalked up big gains reflecting an undercurrent of discontent and frustration with the mainstream political parties. Politically, this would appear to present David Cameron with a brief opportunity to start the long-promised re-negotiations with the EU, starting with his request for new candidates for the new European Council president to compete with the current federalist candidates of Jean Claude Junker (EPP) and Martin Schultz (Socialists). If he fails to promote a candidates akin to Irish PM Enda Kenny or Polish PM Donald Tusk, it may seriously undermine his promise of a 2017 referendum. The FTSE 100 and FTSE 250 index continued to recover from last week’s falls.
19th May 2014
Bank Governor warns on overheating housing market
Bank of England governor, Mark Carney, warned that the UK housing market has deep problems that pose the biggest threat to the UK’s economic recovery and that the bank stands ready to use its powers to curtail lending. To many, the most obvious action he could take would be to raise interest rates but Carney has ruled this out as a last resort due to the fragility of the UK economic recovery. Instead, the bank could put pressure on lenders by requiring them to hold more capital against mortgages. Another approach could be to get the Financial Conduct Authority to impose tougher affordability measures. Mortgage to value ratios could also be targeted. Either way, the government is now under severe pressure to curtail or close its Help to Buy scheme. The 10-year Gilt yield was unchanged at a 7-month low of 2.56%
16th May 2014
Gilt yields fall further on cautious Carney comments
Gilt prices rose further, pushing the 10-year Gilt yield to 2.54%, in response to Bank of England Governor Mark Carney’s warning that the UK economy is not yet mended and that he envisages interest rates staying lower for longer. Drawing an analogy with the upcoming World Cup in Brazil, he said the “Securing the recovery is like making it through the qualifying rounds. That is an achievement but not the ultimate goal”. The market pushed back the timing of a rate rise from March 2015 to right about the time of the election. This strikes us as overly cautious because it runs the risk of the Bank of England appearing politically aligned when, by 2015 and with GDP up and unemployment falling, the bias would surely be on a rate rise in early 2015.
15th May 2014
TAM turn the Gherkin Green!
On 20th May TAM are hosting an event at the iconic Gherkin building in London to present our new ethical proposition and charitable giving through ‘You Give We Give’, and also hear from Standard Life Investment’s Head of Socially Responsible Investing (SRI), Amanda Young. We will also be joined by Jules Payne, CEO of charity Heart UK and John Milton, Director, The Archway Project.
14th May 2014
Mining and tech drive FTSE to 14 year high
The FTSE closed at a 14-year high of 6,851.70 and re-opened again even stronger not far short of the record high of 6,930 set on 30th December 1999. Mining and technology stocks which suffered last month were back being bought. The Q1 US earnings season wrapped up with 70% of companies in the S&P500 beating their earnings forecasts although revenues weren’t quite so positive where around 50% got in ahead of expectations. Ahead of the Bank of England quarterly inflation report, there is some speculation that interest rates may rise even earlier but the debate is fogged by a number of issues relating to inflation, employment, GDP and, of course, the general election in 2015. We believe the market will happily tolerate a single rate rise before then. Any more might be a different matter entirely.
14th May 2014
S&P500 touches 1,900 for the first time ever
The main US equity index, the S&P500 index of leading US companies, rose above 1,900 for the first time ever. The first quarter earnings season was good with 70% of companies beating their earnings forecasts. The gloss was taken off by only average sales performance which tells us that company CEOs may be limiting employee pay and possibly using the money to buy back shares – a popular strategy to boost profitability ratios. With unemployment falling, this is turning from a jobless recovery to an incomeless recovery. An improvement in average hourly earnings would confirm that that this lift off is genuine. But the equity market seems in no mood to hang about to wait for the facts.
6th May 2014
Fed should be pleased with US jobs data
The closely watched US non-farm payroll data confirmed once and for all that the stalling of the jobs data in January was a weather related blip which also helps to explain the low Q1 GDP figure of 0.1%. According to the data, there were 288,000 new jobs in April, far more than the 220,000 expected. The falling participation rate takes off some of the gloss but it has only fallen back to where it was a year ago, giving the Federal Reserve cause for comfort. Equity markets stayed close to recent highs but bond yields, including Gilts, stuck stubbornly down near the lows for the year.
15th April 2014
UK inflation falls to lowest level since October 2009
UK consumer price inflation fell again in March for the ninth month in a row to 1.6% from 1.7% in February. Prices for clothes and household goods rose at a slower pace to bring the figure down and services fell to a level not seen for 5 years. However, the biggest factor pushing inflation lower was the falling price of petrol and diesel which inevitably feeds through to the price of delivered consumer goods. Inflation of 1.6%, the lowest since October 2009, is now at a level where the fall in real pay can now stabilise following years of decline.
1st April 2014
European inflation rate remains in ECB ‘danger zone’.
Annual consumer inflation for the euro zone fell to 0.5% for March, its lowest level since 2009, and the sixth month it has fallen below the European Central Bank’s 1.0% danger level. The news has increased speculation that the ECB will undertake further monetary policy easing measures, including a possible cut in interest rates, or indeed negative interest rates, to ward off the threat of deflation when it meets later this week. At its last meeting the ECB held rates unchanged but said at the time that it may take bold action should the outlook deteriorate. Analysts have noted that with Easter falling far later this year, a time when hotel and flight prices typically rise, the ECB may wait until next month before taking any firm decision. With further radical measures such as such as quantitative easing and negative deposit rates being suggested, Thursday’s meeting will be closely watched.
20th March 2014
New Fed chair Yellen signals earlier rate hike
New Federal Reserve chair, Janet Yellen, speaking at her first press statement and statement to Congress, presented a set of economic data which points to an earlier hike in interest rates than previously expected. The Federal Reserve now sees interest rates rising to 1% by the end of 2015, about 0.25% higher than was assumed back in December. By the end of 2016, rates look to be stronger still, rising from an expected 1.75% to 2.25%. US bond yields rose 5 basis points to 2.75%, and could've gone further if it the forecasts hadn't been moderated with a more dovish statement that Fed still expects rates to remain below their long run level of 4% even if inflation is pushed up by falling spare capacity in the economy as a whole
20th March 2014
Upbeat UK Budget statement fails to lift shares
George Osborne gave a determinedly upbeat Budget statement on the state of the UK economy and made a point of highlighting the upward revision to growth forecasts by the Office for Budget Responsibility. A year ago, they predicted growth in 2014 would be 1.8% which was revised up to 1.8% at the Autumn statement. Today, the forecast is 2.7%. However, this was well flagged and, in fact, the market was probably looking for something even closer to 3%. What really moved equity markets was the bombshell on changes to pension annuity rules which saw £3 billion wiped off the value of life insurance sector shares. Prudential, L&G, Aviva and Standard Life saw large falls. Gaming stocks like William Hill were also hit by higher taxes. The FTSE 100 fell -0.49%. Gilts recovered some losses in the afternoon as the Debt Management Office signaled a £16 billion reduction in issuance in 2014
19th March 2014
Shake up at the top for Bank of England
Bank of England Governor, Mark Carney, unveiled the UK Treasury of three new senior appointments for the Bank. Former Goldman Sachs economist, Ben Broadbent, will become deputy governor for monetary policy. The deputy managing director of the International Monetary Fund (IMF), will take up the role of deputy governor for markets and banking. Anthony Hapgood, chairman of Whitbread and Reed Elsevier is appointed chairman of the BoE's governing court which is the Bank's board of directors whose primary role is to oversee strategy, budget and risk standards. The overhaul reflects a need to reform the BoE's structure to make senior staff more accountable and to ensure the Bank is better prepared to manage future external shocks
14th March 2014
Japan's Nikkei 225 Index hit as fears grow over China
Chinese premier, Li Keqiang, confirmed what many suspected that markets may have to brace themselves for a number of corporate debt defaults as deregulation gradually removes state back bailouts. While overinvestment in China has been evident for some time, it is the slowing growth in GDP that has now got amongst investors. Chinese officials have admitted that Q1 GDP could slip below the target 7%. Markets are also wary of the fall in the price of copper, an historically valuable indicator of economic health, particularly in China. The Japanese Yen, being a safe haven currency in Asia, rose on the news, leading to a significant sell off in Japanese exporting shares which dragged the Nikkei 225 down to a 3.3% loss on the day
6th February 2014
Equities off recent lows ahead of ECB rate decision
With EU inflation only half the central bank target, one might think that a decision to cut rates would be a foregone conclusion. But in a polarised EU, the counter view from Germany that another cut is a step closer to quantitative easing holds some sway. Either way, the ECB is playing a dangerous game by doing nothing in the face of deflationary indicators and there is a feeling that he must surely act now. Whether this involves another cut to interest rates or a less headline-grabbing tinkering with the repo rate, or even a move to negative deposit rates, it is likely that the real business will be in March when the ECB’s forecasts are published.