2017 | www.selectasset.com
August 2017 Market Update
The US economy continues broad-base expansion; the Labor Department employment statistics indicate the economy is still creating jobs; July 2017, 209,000, exceeding market forecast of 180,000 and coupled with a higher revised June 2017, 253,000 sent the unemployment tumbling to 4.3%. Since the financial crisis, the USA has created 17 million jobs; however wage growth to stimulate sluggishly low inflation remains under pressure. Overall macroeconomic indicators remain positive, but there is political concern the U.S. President Trump is losing much needed political capital from both parties on key issues of his political agenda. The Federal Open Market Committee (FOMC) in July 2017 indicated it could begin the process of policy adjustments to unwind the banks $4.5 trillion dollar balance sheet as soon as September 2017. With the US economy proving to be more resilient, the street view is FOMC may tighten monetary policy at the next meeting which leaves room for possibly one or two more interest rate adjustments yet this year, despite the target inflation rate hovering 1.6% to 1.7% under the target rate of 2.0%. The FOMC actually increased its anticipation for GDP growth in 2017 ticking the figure up to 2.2 percent; the forecast for 2018 and 2019 remain unchanged at 2 percent. FOMC GDP 3Q forecast projection is 3.7% citing risks to the economy appear roughly balanced. The Consumer Price Index year-on-year to remained unchanged around 2.0%, The labor force participation rate was at 62.9 %, seen a 0.1% slight increase from June 2017 62.8%. Economists have said data while some economic indicators show mixed strength in the economy in July 2017; one key element is the pace of job creation, which continues to be very brisk, despite sluggish wage growth. The Dow Jones Industrial Average joined the S&P 500 and Nasdaq Composite in setting new record closing highs on Wednesday, July 26, 2017.
Brexit-EU discussions still concern U.K. businesses citing lack of exit policy and operational clarity, while the EU focus remains on 1, exit policy and 2, negotiation of trade deals only after formal exit. While the Bank of England (BOE) growth forecasts for the UK’s economic performance remain around 1.9%, data indicates. The Bank of England maintained interest rates at 0.25% but also noted interest rate policy adjustments could be forthcoming within one year. The BOE policy makers see inflation ticking up above the target rate of 2.0%, responsible for the recent rise is the 0.1% upward increases in real household wages, the greater factor is shifts in the currency value, but the BOE does expect the increases to subside by year-end. The Office for National Statistics shows the U.K. unemployment rate held firm at 4.6% and the labor participation rate 74.8%, remained high.
According to the European Union’s statistics office in Luxembourg, economic expansion across the block was solid with GDP figures supporting overall block 2.1% business growth, up 0.6%. Sentiment in the Euro block remains in positive territory around 111. The Euro inflation rate remained unchanged 1.3%, which the Central Bank is concerned about as it inflation undershoots the target rate. Unemployment remains stubbornly high at 9.1% with a labor force participation rate across bloc nations easing slightly. The economic performance showed modest improvements and resilience across much of the bloc, sufficient enough for the ECB to begin discussions on winding down its balance sheet.
The Japanese economy continued to be active with more positive business sentiment among large companies. The BOJ left the interest rate in check by 7-2 vote; continued its massive quantitative asset purchases; however 1 out of 9 BOJ board members believes that Japan will ever hit or maintain 2% inflation rate, the new forecast is now 2020 to achieve the target. Domestic demand for goods and services in Japan continues to lag expectation as households trim spending, but overall consumer sentiment was up 43.8, July 2017. Gross domestic product (GDP) expanded, but the annualized rate of growth remains unchanged from 1%.The data is weaker than expected and was mainly due to an unexpected private consumption. The labor market has tightened to full employment for the first time in history with statistics showing more jobs available than job seeking participants; but despite the tight conditions economists remain puzzled by the fact this has not translated into wage growth.