2017 | www.selectasset.com
September 2017 Market Update
After the failure of the Republican lead health care reform, Congress has moved to tax overhaul and debt ceiling talks. Solid policy change has yet to be seen. US inflation fell to 1.4% in June while unemployment steadily dropped to 4.3%, half of post-recession highs. The dollar fell after the Federal Reserve Bank of Kansas City's Economic Policy Symposium in Jackson Hole, Wyoming due in part to the lack of macroeconomic news or policy from Federal Reserve Chair Janet Yellen. Despite the ongoing political turmoil throughout the US, the Conference Board reported that August consumer confidence reached its second-highest level since 2000 at 122.9. The increase in hiring, low unemployment rates, contained inflation and increased home-price appreciation bolstered economic optimism according to many economists. This optimism may be short-lived with the landfall of Tropical Storm Harvey in Texas. At the close of August, analysis grappled with estimating the cost of Harvey’s destruction. Early estimates view this hurricane as potentially the most expensive storm to date, the full economic and social impact still unclear. As of August 30, Harvey has affected U.S. gasoline prices. Prices have hit a two-year high as Gulf Coast refiners cut back production.
Many business and banks continue to adjust for the Post-Brexit era. Throughout the month, the U.K. moved to solidify Brexit. On August 7, the Sunday Telegraph reported the U.K. would pay 40 billion euros to leave EU. However, Brexit Secretary David Davis has stated this figure is not final. How long the Brexit transition period will last remains to be a debated issue among government officials. As these Brexit talks continue, the UK economy faces challenges. In July, consumer spending fell 0.8% for the third month in a row. Housing price increases have also taken a hit, falling to an annual 2.1%, the slowest since April 2013. Bank of England Governor Mark Carney has acknowledged that Brexit uncertainty is affecting businesses and households and the BOE has downgraded its economic outlook. Economists view the uncertainty caused by Brexit will prevent consumer spending to recover. Since the June 2016 Brexit vote, the sterling has fallen 13%. This month, the BOE kept interest rates at a record low. The U.K.’s July inflation rates remained at 2.6% against many economists expectations. In mid-August, the government released another Brext position paper stating it does not want a physical boundary along the Irish border.
During the second quarter, the euro-zone economy grew 0.6%, this growth following a 0.5% expansion at the beginning of the year. These numbers match the expectations of many economists and support the view that the single-currency area is becoming self-sustaining. However, European Central Bank President Mario Draghi at the Fed’s Jackson Hole Conference emphasized the need for caution since inflation is still below 2%, the central bank’s goal. In late August, the European Commission in Brussels stated that euro-area economic confidence rose from 113. 3 in July to 111.9 in August, the highest level in a decade. This confidence is based on an index of industry and consumer sentiments. Economic confidence rose in all the major areas of the euro-area except Germany. Germany's economy shows signs of robustness as the joblessness rate remains at 5.7%. However, German wage growth is still moderate, and consumer prices rose an annual 1.5% according to reports from July.
Geopolitical tensions between North Korea, South Korea, the United States of America, and Japan have increased with the threat of North Korean missiles. In early August, these tensions did not appear to affect markets. On August 12, the MSCI Asia Pacific Index excluding Japan due to the national holiday lost 1.6 percent and had shown signs of slight falling by the end of the month. Tensions reached a high when North Korea launched a ballistic missile over Hokkaido, Japan on August 29, but the effect on the market yet to be seen. Japanese investors are not predicted to abandon their South Korean market holdings according to many economists. Japan’s industrial production fell 0.8% in July compared to June’s increase of 2.2%. Nonetheless, Japan has had a seventh-consecutive quarter of economic growth and exports have increased all year.