An update on the markets from our investment partners JM Finn.
Life in Limbo Land
News that inflation had leapt to its highest level for nearly four years had little impact on markets. Shares lost a bit of ground after the announcement, while the pound perked up a little. The rational for stronger sterling must be that it will force the Bank of England’s hand into reversing its cheap money policy and will lead to a rate rise. After all, the Fed has embarked on a rate rise series, with two more 25 basis point increments expected later this year.
Certainly, there is clear evidence now that the fall in the pound since the referendum is pushing prices higher. Food and fuel were the drivers of this, with the oil price up on a year ago and cheaper sterling impinging on imported food prices. Bad weather in Spain didn’t help either. While inflation could act as a brake on consumer spending – it is now level with average earnings growth – it cannot be ignored by the Bank’s Monetary Policy Committee, the body charged with setting interest rates. Currency investors like higher interest rates – it’s the dividend they receive for holding the currency.
Given that the announcement of Article 50 is being triggered also caused barely a stir in markets, it seems that most investors are sitting on their hands for the time being. There remains plenty of uncertainty around, but then this is a strange time of the year for domestic markets anyway. Private investors will be balancing their portfolios for the tax year end on 5th April, while we are between reporting periods for both companies and economic statistics.
Indeed, now that we have the inflation figures out, there is little to look forward to for the UK until the beginning of April. True, there will be plenty of other data out for Japan, the US and the Eurozone which may well impact on investors’ views of the global economy, but back at home we are in limbo – both in the short term and until the Brexit negotiations get underway. Unless, of course, the correction seen in US markets extends and trickles over into other bourses.
Wall Street had travelled for a remarkable 109 days without recording a fall of 1% in a single trading session – until 21st March, that is. With record highs being recorded, investors appeared prepared to take profits as concern over President Trump’s ability to deliver on his campaign promises grew. As it happens, investor confidence is at a 30 year high, according to a recent high, while consumer confidence is also robust. But setbacks in healthcare and immigration policies have raised concern. The state of Limbo might continue for a while yet.
Brian Tora, who is a respected writer and broadcast-er on investment issues, is a consultant to JM Finn & Co. Brian has enjoyed a long and distinguished career in the City. Any opinions expressed are his own and should not be construed as advice from JM Finn & Co. A version of this article may appear elsewhere in the press.