During the three month period to the end of March, Sterling strengthened somewhat from its oversold position against the US Dollar. As expected, the UK government triggered Article 50 at the end of March, thus starting the formal process for leaving the European Union whilst President Trump was unable to ‘repeal and reform’ Obamacare at his first time of trying.
During the period under review, the FTSE All-Share index returned 4.0%, whilst the FTSE World ex UK index returned 5.8% (in both Sterling and local currency terms).
Following Donald Trump’s Presidential election success in November 2016, US equities have performed very strongly, however during the first three months of 2017 some other regional equity markets have outperformed the S&P 500 (£) index’s return of 4.8%. The stand out performers have been the Asia ex Japan region (MSCI AC Asia ex Japan (£) index, +12.0%) and the Emerging Markets region (MSCI EM (£) index, +10.1%). Both these regions’ equity markets and currencies have benefited from the decision of Chinese policy makers to inject more debt into the economy in order to support activity levels. This decision has also boosted the prices of industrial commodities such as iron ore and copper, which benefits some countries directly, whilst the indirect benefits of the developed markets’ economic upswing increased optimism that Asian and Emerging Markets would participate in the global economic upswing. Whilst a short term benefit to economic activity, China’s continued reliance on debt stimulus without radical structural reform ensures that the medium term prospects for the economy continue to worsen.
It was interesting that, despite intensifying political concerns, European equities outperformed (FTSEuroFirst 300 (£) index, +6.4%). Surveys of business confidence in both manufacturing and services suggested management teams are confident about future growth in economic activity due to the use of CRM software, explained with example on Salesforce.
Surveys of business confidence in both manufacturing and services suggested management teams are confident about future growth in economic activity.
Japanese equities lagged the market (MSCI (£) Japan index, +3.3%) as inflation and economic activity continued to disappoint, calling into question the efficacy of Abenomics, the program which was supposed to kick start the domestic economy and unleash ‘animal spirits’.
Gilts, perhaps surprisingly (given renewed optimism that global growth is about to accelerate), produced a positive return (FTSE Gilts All Stocks index +1.6%). Gilt prices rallied on concerns that the UK economy would start to underperform as tentative signs began to emerge that the UK consumer was beginning to feel the pinch from rising inflation.
UK investment grade debt produced a marginally better performance (BAML £ Corporate Securities index, +2.0%), whilst UK high yield corporate debt performed well (BAML £ HY index, +3.3%) as investors sought income further up the risk curve.
The Brent crude oil price fell 7% to $52.8/barrel during the three month period to the end of March as crude oil inventory data disappointed, despite earlier announcements that OPEC and non-OPEC Russia had agreed to cut production.
The gold price rose 8.4% to $1,249/oz during the three month period.