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Investment Market Commentary - May 2017

In the short term, the biggest influence on confidence for UK investors will be the upcoming UK General Election. On 19th April, the House of Commons overwhelmingly supported the snap election to be held on 8th June. At that time the Conservatives were materially ahead in opinion polls, however, after the publishing of the manifesto and a major U-turn on social care costs, the Conservative lead over Labour has started to narrow appreciably. If this lead continues to decrease UK financial markets are likely to become nervous as they are, to a certain extent, pricing in an increased majority for the current Tory administration.  

Meanwhile, the decisive victory for Emmanuel Macron in the French election was viewed positively as it kept the anti EU Front National party out of power. In reality Macron is likely to call for the reform of some key European procedures and this will potentially cause conflict with Germany. 

During May the FTSE 100 Index hit an all time high, reaching 7,500 points, this has been driven by higher oil and commodity prices.  Continuing weakness in Sterling is also benefitting companies with high levels of exports.  The FTSE 250 Index also hit an all time high, despite the challenges ahead for more domestic focussed companies. Valuations look a little stretched by historical standards although corporate earnings generally continue to justify positive investor sentiment.    

In the UK, economic data is pointing to a mixed outlook.  UK mortgage approvals fell in March to its lowest level in six months, while industrial production also fell.  However, unemployment currently stands at a four decade low although real wages continued to fall.  Real wage increases remain elusive as the inflation figures continue to trend upwards. In March annual inflation hit 2.7%, the fastest rise since 2013. On a positive note for GDP, retail sales rebounded in April following a steep decline in the first quarter.  Economists have warned though that without real wage increases, the UK consumer will struggle to keep up with current spending habits.

Elsewhere, the Eurozone economy is showing signs of a strong recovery. The manufacturing sector has added jobs at the fastest pace in 20 years.  The French economy in particular is performing above trend, with most leading economic  indicators standing at their highest for six years. This underlying strength helped the Eurozone’s trade surplus with the rest of the world to rise to its highest level since the single currency was introduced in 1999.       

In the United States, despite a continuing difficult political backdrop, the economy is holding firm. Unemployment has fallen to its lowest level in nearly a decade. This should eventually feed through to retail sales, a key driver of US economic growth.

Financial markets continue to rise, with very little negative corporate news to worry about at least for the time being.  A more positive economic outlook for the Eurozone is certainly fuelling the optimistic mood and a stabilisation of the political backdrop in the EU has also removed a level of uncertainty that had existed earlier in the year. In the UK, once the General Election is out of the way, investors are likely once again to focus on the upcoming BREXIT negotiations. The eventual outcome of these negotiations is difficult to predict but we remain hopeful for a suitable settlement for both sides.

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.         

Nick Wills, 26th May 2017

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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