MARKET UPDATE: UK SET FOR ANOTHER ‘SUPER THURSDAY’

Market Update

LAST WEEK – KEY TAKEAWAYS

Mixed news for UK economy…

Economic think tank, the EY Item Club, has upgraded its growth forecasts for the UK economy, lifting its gross domestic product (GDP) estimates for 2018 to 1.7%, up from the 1.4% predicted in October. It acknowledged that growth was better than expected in 2017, and it expects this momentum to carry into this year. However, the latest IHS Markit purchasing managers’ index (PMI) data for the manufacturing, construction and services sectors all disappointed for January. The surveys question firms on measures such as new orders, hiring and inventories to gauge the health of various sectors.

… As UK consumer confidence improves

UK consumers have started the year with a rosier outlook as the widely followed GfK consumer confidence index climbed 4 points to -9 in January. This was a boon to economists, who had predicted no change with the reading holding at -13. However, the index still remains in negative territory and is likely to stay that way while UK wage growth remains below inflation.

Eurozone on the rise

The eurozone continues to impress having grown at its fastest rate in a decade in 2017, according to Eurostat data. It reported that GDP expanded by 2.5% in the bloc last year, which represented the most rapid rate of growth since the 3.4% achieved in 2007. Further good news came from the latest composite purchasing managers’ index (PMI) from IHS Markit, which showed that output from private companies in the eurozone grew at the fastest pace for nearly 12 years during January.

US wage growth accelerates

Growth in average hourly earnings in the US registered at 2.9% for January. This was the strongest year-on-year gain since 2009 and, with the economy close to full employment, it suggests that employers are having to increase pay in order to attract scarcer labour.

German coalition talks pass another deadline

There was further progress in negotiations between the chancellor Angela Merkel’s CDU/CSU and the Social Democrats (SPD) last week, though the two sides missed their self-imposed deadline to forge a new government by Sunday. Discussions have already resumed this week, with the main talking points being disputes over healthcare and labour policy.

Looking ahead – TALKING POINTS

UK set for another ‘super Thursday’

This week, the Bank of England (BoE) takes centre stage for ‘super Thursday’ as its Monetary Policy Committee (MPC) will vote on whether to move interest rates, and we will also see the release of its quarterly inflation report and minutes from the MPC’s last meeting. The BoE is expected to hold interest rates at 0.5% for now, while the EY Item Club (as mentioned above) forecasts two rate rises later in May and November – the think tank expects rates to hit 1.25% in 2019.

Interest rate policy is the BoE’s primary mechanism for controlling inflation. The headline inflation figure stood at 3% in December, continuing to overshoot the Bank’s 2% target, though it is expected to fall back this year. Inflation has in part been caused by weakness in the pound, which led to increases in the cost of imports, but more recent strength in the currency should mean UK consumers begin to see slower price rises.

UK CPI inflation rate (%) – January 2014 to December 2017

cpi_feb_18_494x190.jpg

Source: Office for National Statistics, Tradingeconomics.com

Industrial production data due

Another widely watched measure of economic performance, industrial production data is due from Germany, France, Italy and the UK this week. The industrial sectors covered are manufacturing, mining and utilities, and although they often only contribute a small portion of a country’s gross domestic product (GDP), these are highly sensitive to moves in interest rates and consumer demand. As the eurozone’s largest economy, analysts are keen to see how well Germany is holding up – its industrial production rose 3.4% month-on-month in November, easily beating market expectations.

Italy’s output increased by 2.2% in the same month, while France is looking for a positive figure with its industrial production having shrank by 0.5%. On a year-on-year basis, the November figure for the UK was up 2.5%. Looking specifically at manufacturing, the Office for National Statistics reported last month that output is expanding at its fastest rate since before the financial crisis in early 2008.

UK industrial production index – December 2016 to November 2017

rsz_uk_industrial_production_500x189.jpg

Source: Office for National Statistics, Tradingeconomics.com

THE OMNIS VIEW

Through a well-diversified approach to asset allocation, the Omnis investment team aims to defend and grow the value of your portfolio through market cycles. For all the efforts of central banks, inflation has remained stubbornly low in the post financial crisis era. However, robust data – most noticeably in the US labour market – are beginning to challenge this trend. Having become accustomed to a low inflation and low interest rate environment, the market’s reaction to this challenge is likely to dictate investor outcomes over the coming months. The Omnis investment team continues to run diversified portfolios that seek to balance this risk against what, for the most part, remains an encouraging economic backdrop.

The Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC are authorised Investment Companies with Variable Capital. The authorised corporate director of the Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC is Omnis Investments Limited (Registered Address:  Washington House, Lydiard Fields, Swindon, SN5 8UB) which is authorised and regulated by the Financial Conduct Authority, 25 North Colonnade, London E14 5HS. Omnis Investments Limited does not offer investment advice nor make recommendations regarding investments. Potential investors are particularly advised to read the specific risks and charges applicable to the Funds which are contained in the Prospectus and Key Investor Information Documents (KIIDs).

Omnis Investments Limited is registered in England and Wales under registration number 06582314 (Registered Office: Washington House, Lydiard Fields, Swindon SN5 8UB).

Market Update

The first month of the year marked the first anniversary of Donald Trump as US President, his state of the union speech, the World Economic Forum in Davos, Switzerland and that interview… between Donald Trump and Piers Morgan… Trump’s first international broadcast interview.

The FTSE 100 ended January at 7,533.55, which was 2.0% lower than the 2017 year end closing figure of 7,687.77. During January, the index climbed to an intra-day high on 12 January of 7,792.56.

In the US, the Dow Jones Industrial Average continued its general upward momentum, closing January at 26,149.39. This was 5.4% above the 2018 opening level of 24,809.35 and was the tenth straight monthly gain, leaving March 2017 as its last losing month.

In terms of £ Sterling, it ended January at 1.41 US Dollars. This was 5.1% higher than the closing figure at the end of December of 1.35 US Dollars, and 15% higher than the closing figure in 2016 of 1.23 US Dollars.

Against the Euro, £ Sterling ended January at 1.14 Euros, which was slightly higher than the year opening rate of 1.13 Euros.

Inflation, as measured by the Consumer Prices Index including owner occupiers’ housing costs (CPIH), was 2.7% in December 2017 (this is December’s data which is reported in January). This was down from the previous month’s rate of 2.8%. The 12-month rate for the Consumer Prices Index (CPI) rate which excludes owner occupied housing costs and council tax was 3.0% in December 2017, which was also down from the 3.1% in November 2017.

The increase in interest rates during November 2017 helped long-suffering deposit savers slightly. However, they continue to lose money in real terms when you consider the rate of savings interest compared to the rate of inflation.

The Omnis Managed funds, Openwork Graphene Model Portfolios and new Omnis Managed Portfolio Service provide you with a diversified asset allocation in line with your Attitude to Risk, investing in Developed Market Equities, such as UK, US, Europe and Asia Pacific as well as Emerging Market equities. Cautious and Balanced investors will also have significant holdings in UK and Global Bonds, as well as Alternative Strategies.

We believe this multi-asset approach aims to give you the best opportunity for the highest level of return for your stated level of risk.

Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested.

The CIO: A week in the life

The week featured here is 23 – 27 October 2017; a period that saw a number of important global events.

Toni Meadows, Chief Investment Officer of the Omnis Managed Portfolio Service
“My day-to-day work life is broadly split into two roles. One is to monitor and keep in close contact with the managers of the Omnis funds range, while the other is to lead the Omnis Managed Portfolio Service. This is where my team allocates money across the individual Omnis funds according to the risk preferences of the investors whose money we are responsible for.”

Monday
An early start and my first port of call is to check what has happened overnight in Asian markets given Sunday’s Japanese general election. Stock markets reacted well to president Abe’s victory, which is good news for our Omnis Asia Pacific Equity Fund. We check in with the fund manager at Baillie Gifford to see how he reacted and his views on the implications of the result.

The team gets together in the afternoon for our quarterly analyst meeting. While we meet formally every week, this is an extended discussion and our chance to talk in real depth about how we are investing in each of the Omnis funds, as well as upcoming meetings and changes to the global economic environment.

Tuesday
The morning starts with a call with Schroders, who manage the Omnis UK Equity and Omnis Global Bond funds. Of interest to us today is how the funds may be impacted by upcoming policy meetings by the world’s big central banks, one of the tasks of which is to set interest rates.

Later that day, our attentions turn to the US where we recently changed the manager of the Omnis US Equity Fund. We are in regular contact with the new manager T. Rowe Price to get an update on performance, buys and sells within the fund and investment outlook for the country.

Wednesday
Given the amount of client money we manage, it is no surprise we are often invited to various high-level conferences and events hosted by top investment strategists and economists. Today I attend Pimco’s Global Advisory Board summit with fascinating speeches from the likes of former Prime Minister Gordon Brown, ex-US Federal Reserve chairman Ben Bernanke, and Jean-Claude Trichet, who was president of the European Central Bank from 2003 to 2011.

From that, I rush back to the office for the Openwork Investment & Proposition Committee, another valuable safeguard for investors, where I am tasked with running through our investment choices for senior directors and non-executives.

Thursday
Much of today is spent with advisers. Having recently finished our Masterclass events, a series of roadshows meeting advisers up and down the country, I’ve scheduled some follow-up one-on-one meetings. As the Omnis Managed Portfolio Service is a relatively new proposition, it is important to outline exactly how the team works and the benefit we can bring to our investors.

In the afternoon, all eyes are on the European Central Bank, which intends to extend its bond-buying programme until at least September 2018.

Friday
After a busy week, it is good to spend some time catching up on research with notes from external economists. I also spend some time on Bloomberg screens, checking the progress of the Omnis funds and analyst notes on yesterday’s news.

As is often the case, I end the working week with plenty of questions buzzing around my head. What is the likelihood of the Bank of England raising interest rates next week? And how might UK stocks and the pound react? While I am certainly looking forward to a relaxing weekend ahead, I can’t help but ponder what surprises wait for me on Monday.

If you’d like to know more about Omnis Investments and the Omnis Managed Portfolio Service, please get in touch.

MARKET UPDATE: YELLEN BOWS OUT

pablo Market Update

 

MARKET UPDATE: YELLEN BOWS OUT AS FED LAYS GROUND FOR MARCH HIKE

LAST WEEK – KEY TAKEAWAYS

US/China trade relations take centre stage at Davos

Leaders gathered for the World Economic Forum in Davos, Switzerland, last week. Understandably, there was much debate around the fortunes of the world’s two largest economies. Donald Trump was on the front foot with careful attention paid to the approval of broad tariffs on US imports of solar cells and washing machines, something which did not go down well among Chinese manufacturers. Trump is committed to these and other protectionist measures, which are designed to shield US-based businesses from the threat of cheaper overseas competitors. A key soundbite from Davos was Trump’s proclamation of “America First,” though he qualified: “(this) does not mean America alone. When the United States grows, so does the world”.

UK GDP up 0.5% for fourth quarter

The UK economy grew by 0.5% in the final three months of 2017, which was at a faster rate than many had anticipated. Analysts had expected the same 0.4% figure as was posted in the third quarter of the year. For the year as a whole, the Office for National Statistics (ONS) said growth came in at 1.8%, down from the 1.9% achieved in 2016.

UK wants to vet post-Brexit EU laws

Six weeks after EU leaders gave the green light for Brexit negotiations to move on to the future arrangements, tensions have reportedly surfaced over Britain’s desire to vet new EU laws agreed by the rest of the bloc during the transition period after Brexit on 29 March next year. A European Commission memo reportedly states that “significant divergences” remain on agreeing a process to resolve any future disputes about the Brexit deal.

Japan and eurozone leave interest rates unchanged

The Bank of Japan (BoJ) and European Central Bank (ECB) both decided to leave interest rates unchanged last week, as had been expected. BoJ policymakers voted 8 to 1 to keep monetary policy unchanged; its short-term policy rate is at -0.1% and the 10-year year yield target at 0%. As discussed last week, Japan has been buoyed by recent signs of economic strength, though inflation continues to run below target. Meanwhile, the ECB announced that there is “very few chances” any interest rate rises this year – the base rate is currently 0%. ECB chief economist Peter Praet said the bank would not stop its €2.55tn monetary easing programme unless it was confident that inflation is heading towards its 2% target.

Looking ahead – TALKING POINTS

Yellen bows out as US Fed preps for March rate hike

Janet Yellen will chair her last meeting of the US Federal Reserve this week, before she is replaced by Jerome Powell. No changes to policy are expected from Wednesday’s meeting, with Powell expected to preside over an interest rate rise in March, the first of three expected this year. Since the last Fed meeting in December, inflation has picked up – excluding food and energy the core consumer price index (CPI) increased 1.8% year-on-year and was up 0.3% during December.

The Fed is currently targeting a range of 1.25% to 1.5% for its benchmark interest rate, though this is expected to be hiked to over 2% during 2018. While last week’s temporary government shutdown brought negative headlines, US equities have registered their strongest start to the year since 1987. Investor sentiment has been buoyed by the approval of recent tax reforms, while healthcare and technology companies have been among the big risers.

US Fed funds rate (%) – January 2013 to December 2017

 

 rsz_us_int_rates_jan_18_499x195_jpg

A closer look at UK consumer confidence

Having dropped to a four-year low in December, investors will be hoping to see more positive data on UK consumer confidence this week. The latest GfK consumer confidence index data for January is due on Thursday, having fallen one point to -13 at last count. This is not the only measure of our appetite to shop, with a separate tracker from Deloitte released today (29 January) suggesting that consumer confidence remained flat during the fourth quarter of 2017 (a reading of -7%), compared to the same period a year earlier.

Deloitte’s survey of 3,000 people said that overall confidence rose in the second half of 2017 with record levels of confidence in relation to job security. Data for September to November last year, released by the Office for National Statistics (ONS) last week, showed some 1.44 million people out of work, meaning the UK unemployment rate remains at a four-decade low of 4.3%.

Deloitte consumer confidence index – Q4 2011 to Q4 2017

 

deloitte-uk-cc_500x258

THE OMNIS VIEW

Through a well-diversified approach to asset allocation, the Omnis investment team aims to defend and grow the value of your portfolio through market cycles. After four years as the Fed chair, Janet Yellen leaves behind a US economy in the middle of a hiking cycle, with full employment but with stubbornly low inflation. It’s a largely positive legacy, with US equities having shown sturdy growth during the period.

The Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC are authorised Investment Companies with Variable Capital. The authorised corporate director of the Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC is Omnis Investments Limited (Registered Address:  Washington House, Lydiard Fields, Swindon, SN5 8UB) which is authorised and regulated by the Financial Conduct Authority, 25 North Colonnade, London E14 5HS. Omnis Investments Limited does not offer investment advice nor make recommendations regarding investments. Potential investors are particularly advised to read the specific risks and charges applicable to the Funds which are contained in the Prospectus and Key Investor Information Documents (KIIDs).

Omnis Investments Limited is registered in England and Wales under registration number 06582314 (Registered Office: Washington House, Lydiard Fields, Swindon SN5 8UB).

Valuations vs Surveys

Property2

Buying a house… is a valuation sufficient, or should you opt for a full structural survey?

Buying a house is probably the biggest financial purchase you’ll make in your lifetime and at a time when you’re already spending a lot of money, a survey can sometimes seem like a big expense. However, knowledge is power and it’s better to be informed of any potential issues before proceeding with the purchase otherwise it may end up costing you further down the line.

When you’re at the exciting stage of buying a new property it’s easy to get seduced by the appearance of your potential new home, and risk ignoring any hidden problems which could cost you later on.

That’s where a survey can give you peace of mind to purchase your new home with confidence. But with a number of options available, which is the best type of survey for the property you’re buying?

We’ve summarised the different types of surveys available to help you make an informed decision:

A summary of surveys
The type of survey you should go for depends a lot on the age and location of the property. For example, if you’re buying an older property it’s sensible to select for a more detailed report than perhaps someone who’s buying a new-build. The latter usually come with a National House Building Council (NHBC) 10-year guarantee for any big faults or defects in construction or materials.

Basic mortgage valuation
The sole aim of the basic mortgage valuation is to satisfy the lender that your chosen property is worth the price you’re paying before they approve your mortgage. It doesn’t go into any detail on the state of the property.

It’s important to remember that this survey is for the benefit of your mortgage lender and doesn’t provide you with any guarantees about the state of the property.

Homebuyers report
This is a detailed report for ‘standard’ properties which are in reasonably good condition. It provides a more in-depth inspection that will help you find out if there are any structural problems, such as subsidence or damp, as well as any other hidden issues – inside and outside the property. It will also give advice on any defects that may affect the value of the property, along with recommendations for repairs and ongoing maintenance.

A homebuyers report excludes the cost of estimates for repairs.

Full structural survey
Now known as a Building Survey, this is a comprehensive report providing a full breakdown of the fabric and condition of the property, with diagnosis of defects and repairs and maintenance advice. Typically these types of surveys are more suitable for properties that are listed, have an unusual construction, or require significant renovation.

Interest Rate Rise

London

Interest Rate Rise

In 2007 Bulgaria and Romania joined the European Union, Lewis Hamilton got his first drive in Formula 1 partnering with Fernando Alonso at McLaren, the final book in the Harry Potter series was published and England played their first match at the new Wembley Stadium.

It was also the year in which the Bank of England last raised interest rates, when they went up by 0.25%.

That all changed on 2 November 2017 when The Bank of England voted to raise UK interest rates for the first time in over a decade, to 0.5%.

So how could an interest rate rise of 0.25% affect you?
In the short term, both borrowers and savers could see a modest effect on finances. Savers are likely to be pleased with the welcome boost even if the increase is small. Borrowers however will be less pleased as they could see their mortgage repayments rise.

Impact on borrowers
Higher interest will mean that those on Standard Variable Rates (SVR) or Trackers Rates will see their mortgage repayments rise. On a mortgage of £125,000 an increase of 0.25% would result in payments increasing by £15 a month (£185 a year).

Those with larger mortgages will in turn see a larger payment increase. Those with a mortgage balance of £250,000 will see their monthly payments increased by £31 (£369 a year). However, the 57% of borrowers on a fixed rate deal will be unaffected during their fixed term.

These figures might not seem much in isolation, but borrowers should also be aware that higher interest rates could impact other borrowing, like credit cards, car credit or unsecured loans.

There’s also the prospect that rates could continue to rise over the long-term. If we hit 1%, the monthly repayments on a £125,000 mortgage would go up by £78.48, and £161.69 if the rate doubled to 2%.

If you’re concerned about the impact of higher interest rates on your mortgage repayments you may want to consider a fixed-rate deal, especially if you’re currently on SVR. Remember, if you’re already on a fixed-rate deal you may face higher repayments when the term ends. Make sure you diarise when that’s due to happen and get in touch so that we can discuss whether the best option is to remortgage.

Impact on savers
According to research there’s no standard savings account on the market that can outpace inflation, in fact the average easy-access savings account is currently paying 0.35% interest.

If the Bank of England increases the base rate savers may be able to find better returns to keep up with rising inflation. However, as with mortgages, those already on a fixed rate will not see higher rates until the term ends.

Whether you’re a saver or a borrower, we’d love to help you make more of your money. Get in touch to find out how.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Monthly Market Update

pablo Market Update

 

The bells rang and we moved into 2018 with the FTSE 100 closing at an all-time high. This is the second year in a row that the FTSE 100 has ended the year at its highest level.

The final session of the year saw the FTSE 100 close at 7,687.77, which was 4.9% higher than the November closing figure of 7,326.67.  This meant the index enjoyed growth of 7.6% in 2017, following its close in 2016 at 7,142.83.

Despite falling slightly in the final session, in the US, the Dow Jones Industrial Average continued its general upward momentum, closing the year at 24,719.22.  This was 1.8% above November’s closing level of 24,272.35 and was the ninth straight monthly gain, leaving March as its only losing month in 2017.

Over the full year, the Dow Jones Industrial Average enjoyed growth of an amazing 25.1% over its closing figure in 2016 of 19,762.60.

In terms of £ Sterling, it ended the year at 1.35 US Dollars.  While this was unchanged from the end of November, it was 9.5% higher than the closing figure in 2016 of 1.23 US Dollars.

Against the Euro, £ Sterling ended the year at 1.13 Euros, which was fractionally lower than the November closing figure of 1.14 Euros.  During 2017, the pound fell 4.1% against the Euro, having started 2017 at 1.17 Euros.

Inflation, as measured by the Consumer Prices Index including owner occupiers’ housing costs (CPIH), remained unchanged at 2.8% (this is based on November’s data which is reported in December).  The 12-month for the Consume Price Index (CPI) rate which excludes owner occupied housing costs and council tax, was 3.1% in November 2017, up from 3.0% in October 2017.  This is the highest it has been since March 2012.

The increase in interest rates during November helped long-suffering deposit savers slightly.  However, they continue to lose money in real terms when you consider the rate of savings interest compared to the rate of inflation.

The Omnis Managed funds, Openwork Graphene Model Portfolios and new Omnis Managed Portfolio Service provide you with a diversified asset allocation in line with your Attitude to Risk, investing in Developed Market Equities, such as UK, US, Europe and Asia Pacific as well as Emerging Market equities.  Cautious and Balanced investors will also have significant holdings in UK and Global Bonds, as well as Alternative Strategies.

We believe this multi-asset approach aims to give you the best opportunity for the highest level of return for your stated level of risk.

Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested.