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Investment Market Commentary - March 2017

The end of March brought to a close the first quarter of 2017 and with it a period of historical importance for the United Kingdom and Europe.   On 29th March, the UK Prime Minister, Theresa May sent the letter to the European Council officially beginning the UK’s withdrawal from the EU.  This process is likely to take the full two year period set aside for the negotiations and there are likely to be many difficult and unpredictable periods along the way. This has been evidenced recently by the use of regional security and a possible veto by Spain over Gibraltar following a deal with the UK to try and influence early decision making and test nerves.

Meanwhile, the Eurozone has other potential political upheavals to overcome, French elections in April/May and then German elections in September.  The French elections look to be the most potentially damaging, given the rising popularity of Marine Le Pen who is fighting the election on an anti EU platform and has vowed to leave the bloc if she wins.  With high unemployment and growing unease about immigration after a spate of terrorist attacks on French soil, the Front National party look set to win a record number of votes and push the political establishment to the wire. Voter turnout will be crucial to the final result.    

In the United States, the new President, Donald Trump failed to get through legislation regarding the overhaul of the US healthcare system.   This has been seen as a major setback for the President on one of his main election promises and has called into question his ability to pass legislation on his other major promises regarding tax and infrastructure spending.     

Despite the uncertain political backdrop, economies and financial markets have remained relatively buoyant with economic data remaining largely positive. In the UK, the economy is being helped by the weaker currency. The UK’s balance of payments deficit more than halved in the final three months of 2016, Sterling’s 17% fall against the currencies of the UK’s main trading partners boosted exports and earnings on assets overseas. Final fourth quarter GDP saw an annual rise of 2.7%. Record levels of employment, low interest rates and a solid housing market should continue to support the domestic economy.  February inflation figures showed that UK consumer prices rose at the fastest pace in three and a half years.  Annual inflation accelerated to 2.3%, above the Bank of England’s 2% target. Despite higher inflation and growing economy, the Bank of England have suggested that they can tolerate lower interest rates for longer than necessary to help the economy during BREXIT uncertainty. 

The Eurozone’s economy grew at the fastest pace in six years during the first three months of 2017. Inflation has also picked up in the EU and unemployment is starting to fall. However the European Central Bank is likely to keep its stimulus measures in place and this should help retain confidence.   Meanwhile, US 4th quarter GDP was revised up to an annual rate of 2.1% as consumer spending was stronger than previously thought.   However, more recent data points towards a slowing economy, depressed by a widening trade gap and weaker consumer spending.  Despite the slight weakening, US interest rates are likely to continue to rise this year following the 0.25% rate hike in March.

In Asia, China continues to see solid growth although a more protectionist US president could influence data going forward.  Missile testing by North Korea is also destabilising the area, as they continue to be a threat to key US allies, South Korea and Japan. President Trump has said that he will not allow the situation to get out of control and act unilaterally if required.

Increasing talk of trade protectionism and a rolling back of globalisation are likely to be major themes influencing investment markets over the coming year.  The recent meeting of G20 finance ministers saw them drop their anti protectionist pledge following pressure from the US.  Politicians supporting open trade will have to show that free trade benefits the whole of society and not just the few, if they want to keep the support of the electorate.  

Despite the uncertain geopolitical backdrop, we remain cautiously optimistic and feel that our active investment strategy focussing on global diversification and assets with strong fundamental support, will help investors through the challenges ahead.     

Disclaimer: The information provided does not constitute investment advice or recommendations. Whilst we have taken all reasonable care to ensure that the information contained within this publication is  accurate, current and complies with relevant UK legislation and regulations as at the date of issue, errors and omissions may occur due to circumstances outside our control. Please note that past performance is not a guide to future performance and that the value of investments, and the income derived from them, may fall as well as well as rise and investors may not get back the full amount originally invested. Everys is authorised and regulated by the Financial Conduct Authority in respect of financial services No 120379.       

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