MARKET UPDATE: BREAKTHROUGH ON BREXIT TALKS WHILE CENTRAL BANKS TAKE CENTRE STAGE

LAST WEEK – KEY TAKEAWAYS

Breakthrough made in Brexit talks

Prime Minister Theresa May has struck a deal with the EU for the so-called ‘divorce bill’ that will amount to an estimated £35bn-£39bn. May met with European Commission president Jean-Claude Juncker on Friday to sign off the ‘progress report’ that will allow a second phase of talks on post-Brexit relations and trade. EU leaders, who are due to meet on Thursday for a European Council, will now be required to give their backing to the deal.

Japan’s GDP growth revised upwards…

Japan’s economy grew faster than was originally anticipated in the third quarter of this year, at an annualised rate of 2.5% the Japanese government reported on Friday. This figure was revised sharply upwards from a preliminary estimate of 1.4%, Japan’s Cabinet Office said. According to a poll by Reuters, economists had predicted the figure to come in at 1.5%.

… as it seals world’s largest free trade deal with the EU

The EU and Japan have finalised a massive free trade deal to come into effect in early 2019. The deal will cut tariffs, introduce shared standards and regulations and open up public procurement markets. It covers a combined market of around 600 million people who account for approximately 30% of global GDP.

Chinese exports on the rise

Demand for Chinese-made goods remains strong with the country’s exports rising in November by 12.3% from the previous year, according to data published by the General Administration of Customs. The figure is the second-highest growth rate this year and up from a 6.8% year-on-year rise in October. Elsewhere president Xi Jinping said this week China will open its doors “wider and wider going forward” in attracting foreign investment to the nation’s digital economy.

US unemployment rates holds steady

US employers added 228,000 jobs in November, whilst the unemployment rate remained at a 17-year low of 4.1%, according to the Labour Department. This is further evidence of another strong 2017 for the US economy, despite the jobless figure having fluctuated earlier in the year due to hurricanes Harvey and Irma.

Looking ahead – TALKING POINTS

US Fed set to raise interest rates

Policy makers from the US central bank, the Federal Reserve, will meet later this week with market expectations that the bank will raise interest rates by 25 basis points to 1.5%. With unemployment low (see above) and the economy growing at a steady pace, analysts are highly confident that another rate rise is due, attaching a 98.3% probability. Sentiment may also be boosted by an overhaul of the US tax regime – Senate Republicans agreed to talks with the House of Representatives on the legislation last Wednesday, with expectations that they could agree on a final bill before Christmas.

US Fed Funds rate (%) in 2017

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Source: Federal Reserve, Tradingeconomics.com

UK inflation back in the spotlight

The Bank of England’s Monetary Policy Committee also meets this week, though following last month’s interest rate hike of 0.25% to 0.5%, a further interest rate change before the end of the year is unlikely. The recent move was made to counter rising inflation, with the latest headline figure due to be published on Tuesday. It is not expected to vary much from the 3% figure achieved in October and November. The Bank of England also published its latest survey on the British public’s inflation expectations last week, which showed an expected rise to 2.9% over the next two years, up from 2.7%, whilst five-year inflation expectations rose to 3.5%. The survey also found that 63% of the public questioned expect interest rates to increase over the coming year, up from 42% the last time they were asked in August.

UK inflation as measured by the Consumer Price Index (December 2014 to November 2017

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Source: UK Office for National Statistics, Bloomberg

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. Whilst the US is expected to raise interest rates further, the pace of change thus far has been gradual. In addition key areas such as the Eurozone and Japan remain highly accommodative regarding their central bank policy, which helps to create a supportive backdrop for risk assets.

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).