June 2017 | www.selectasset.com
June 2017 Market Update
The Federal Open Market Committee (FOMC) in May released a statement expressing concern about the inflation numbers showing weakness; noting the pace of the Fed Inflation Target Rate had slowed but remains within expectations and data to be a temporary discount. The pace of economic growth remains firm with the strengthening in the labor market. Interest rates remain un-changed; however, economists and FOMC members anticipate that a June interest rate increase is on the table and will gradually rise through the year. FOMC Chair Yellen has warned that delaying to raise interest rates could have negative consequences for the economy. The Labor Department reported the economy added 138,000 jobs in May driving the unemployment down to 4.3%; a 16-year low, which was below market expectations. The labor force participation rate was at 62.7 %, seen a 0.2% slight decline from April 62.9%. Economists have mixed views of the May data noting that while the pace of job creation has been brisk, wage growth continues to lag. Since U.S. Trumps inauguration more than 600,000 jobs have been added in the private sector. The Consumer Price Index year-on year to April was 2.2%, but the index was up 0.2% for May. The new US administration continues to hit rough patches both on the domestic and international stage on key policies, trade frictions, travel bans and etc.
In May, the Bank of England (BOE) revised growth forecasts for the UK’s economic performance. Bank officials now estimate that the UK economy will grow by 1.9% downward from 2%. The Bank of England Monetary Policy Committee voted 7-1 to hold interest rates at 0.25%. Quarterly inflation Report forecast was revised to 2.8% up from 2.4%. According to the Office for National Statistics, unemployment rate held firm at 4.6%. Labor participation rate was 74.8%, the highest level on record since 1971. The BOE policy makers view the fall in the value of the pound after the Brexit referendum being responsible for the recent rise in inflation rates that is putting upward pressure on households as real wages lag. With regards to Brexit, the BOE has citied a smooth transition process and the UK securing agreement about future trading arrangements that are key economic concerns. The UK and European Union traded barbs over the month over exit costs and negotiation of trade agreements and exit strategy proceeding in tandem.
According to the European Union’s statistics office in Luxembourg, the inflation rate in the bloc dipped to 1.4% the slowest inflation rate of growth over the last five months. The inflation rate dropped from 1.9% the previous month. Unemployment remains stubbornly high at 9.3% with a labor force participation rate of 57.10% across bloc nations. The gross domestic product in the euro-area economy rose 0.5% over the quarter. Economic performance showed modest improvements across much of the bloc with Germany, Spain and Belgium leading the pack while France slowed and Italy remained constant. Economists view this data to the Eurozone economic recovery favorable despite uncertainty with ongoing negotiation regarding Brexit and the more recent trade spat with the U.S.A.
The Japanese Diet approved two new members for the Bank of Japan policy committee; the appointees replace two individuals whom consistently objected and voted against the massive QE policies as well as tried to reel in the program. Inflation in Japan remains stagnant, around 0.4% which poses a huge challenge for the BOJ to hit the 2% target rate by 2018. Economists view the appointments with skepticism citing the policy measures have produced nil results; mainly because domestic demand for goods and services in Japan continues to drag as households tighten their wallets, further weaken consumer spending.