Market update - August


Global growth forecasts edge higher
Despite rising geopolitical tensions markets have been relatively sanguine over the last month. The S&P 500 moved less than 0.3% per day for 13 consecutive days from late July to early August, which is the longest period of such low volatility in history. Markets are supported by loose monetary policy and synchronised economic growth. The world economy continues to perform well and GDP forecasts have been gradually increasing. We currently expect global growth to be 2.9% in 2017. Traditionally we would expect higher interest rates in this environment of economic expansion, but central banks remain cautious and we expect interest rates in the UK and US to remain on hold for the remainder of this year. Global trade has been strong, benefiting emerging markets, but there are signs that this may have plateaued. China’s previous dominance is now fading, whereas the outlook for Japanese and European trade has been improving.

UK economy remains fragile
In the UK, strong jobs growth has been a key driver of the economy but wage growth is poor. Economic growth is now at its lowest since the start of 2013 as households struggle with reductions in real income and inflation continues to outpace wages despite the unemployment rate falling to 4.4%, the lowest rate since 1975. As a result the UK economy remains fragile and we expect the Bank of England to keep interest rates unchanged in the near term.

Portfolio implications
We remain invested in equities as growth continues to be generally supportive. We are becoming more cautious on companies exposed to the UK domestic economy given ongoing uncertainty over Brexit and concern over increasingly squeezed consumers. Better economic activity in Europe and more attractive valuations mean we are more positive on the European equity market and have been adding to positions where appropriate. Bond markets remain vulnerable to normalisation of monetary policy, although we expect this to be gradual. Alternative assets are important diversifiers in portfolios, with assets such as absolute return included to provide a buffer when volatility picks up. Property continues to offer an attractive income, although capital returns are hindered by Brexit uncertainty.


The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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