Weekly Market Update

31/07/2017

The International Monetary Fund trimmed back its forecast for UK GDP growth in 2017 to 1.7 per cent from 2 per cent, whilst maintaining estimates for 2018. The body also cut its estimate of US growth to 2.1 per cent for both 2017 and 2018, down from its earlier estimates of 2.3 per cent and 2.5 per cent respectively. The IMF cited Trump’s inability to implement policy measures, which had included tax cuts, looser regulation and more recently his inability to repeal Obamacare.

UK consumer confidence fell to levels last seen during the turmoil immediately after the Brexit vote, according to the GfK survey. It is now widely expected that the consumer will cut back spending in the coming months as price rises continue to outpace wage growth, causing the economy to slow further.

The pound hit a ten-month high against the dollar after the US Federal Reserve adopted a more cautious tone on the outlook for inflation. The central bank left interest rates on hold but offered no real hint as to when the stimulus reduction will start, other than relatively soon provided that the economy evolves as anticipated. Committee members remain confident in the US outlook with supportive financial market conditions helping counterbalance weak inflation.

However, the US futures markets see things differently, believing there is barely a 50-50 chance of one more rate rise by June 2018. The fact that this may not be on the cards as soon as expected will likely see bond yields fall, particularly as US economic data has been relatively weak of late and political unrest always causes uncertainty. The dollar has been weak all year and this is likely to exacerbate this trend.

A series of data releases showed some recovery in the Japanese economy, although inflation remains stubbornly low. Japanese household spending in June rose the most since 2015 and the unemployment rate unexpectedly fell to 2.8 per cent in June.

Greece re-entered the bond markets by issuing new bonds for the first time since 2014. Considered an important step forward for the nation, the country issued €3 billion (£2.68 billion) five bond year bonds which were two-times oversubscribed. Although initially sold with a yield of 4.6 per cent, the secondary market witnessed this fall to 3.18 per cent. Although positive for the country, there is plenty of debt restructuring needed over the next few years to call this a recovery.

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