December 2017 | www.selectasset.com
December 2017 Market Update
The US economy continues broad-base expansion; the Labor Department employment statistics indicate the economy powered ahead in job creation quoting “this is the strongest US Labor market since the turn of the century. The unemployment rate remained in check at a 17 year low of 4.1%, wage increases for the year amount to 2.5%, a modest uptick from 2.3% forecasts. The FOMC anticipates the unemployment rate to dip below 3.9% in 2018. Overall macroeconomic indicators remain positive. Productivity is high, despite a fall in US Consumer Confidence, citing lack of clarity of President Trump’s US Tax reform proposal; US businesses have voiced concerns and appear to be skeptical of the reforms. The Federal Open Market Committee (FOMC) in December 2017 is hiked rate ¼% to 1.5% now and three interest rates are expected in 2018. FOMC data confirms the resilience of the US economy The strength of the US economy continues to roar ahead, inflation is still below the 2% target rate, but is forecast to hit 1.7% in 2018, Chicago Purchasing Managers Index dipped a bit but remains very strong, coupled with solid Labor Index, Housing Index and wage increases going into the holiday season consumer shopping is expected to be very robust. The Dow Jones Industrial Average, the S&P 500 and Nasdaq Composite continue to set new record closing highs, share trade volume on the exchanges have been relatively brisk each day.
Bruit-EU discussions continue remain high on the list of concerns to U.K. businesses; tentative agreement seems to have been reached after Prime Minister May has increased the EU divorce settlement offer to GBP 40 billion, but the UK Parliament handed Prime Minister May a resounding No to the deal as critical lawmakers pushed thru changes to the macro-blueprint to further complicate an already messy and bitter divorce. The EU did claim the GBP 40 billion could potentially be worth as much as GBP 100 billion. The EU remains adamant of no trade deals until after the divorce is final. The UK political maneuvering has run into road blocks on the home front with Ireland sounding alarms over an already complicated border, which could be very expensive for the nation that relies on EU €65 billion per annum in trade. The Bank of England (BOE) growth forecasts for the UK’s economic performance remain broadly similar to earlier forecast projections of 1.5%, downgraded from 2%. The Bank of England is not expected to lift interest rates citing the UK economy is fragile and with inflation pressure mounting 3.1% well above the target rate of 2.0%. All eyes are now looking at forward guidance of monetary policy in 2018. As inflation surges market participants are predicting the BOE will need to hike interest rates to counter the effects. The Office for National Statistics shows the U.K. unemployment rate held about the same as during November 2017 and the labor participation rate remaining high around 75.1%. The FTSE continues to perform strongly despite concerns over the macro-economy.
The EU political turmoil is casting a darker shadow over recent political leadership and setbacks resulting in a weakened Chancellor Merkel’s who is seeking to align herself with other parties to form a majority; however core values of the segmented political allies appear to be in contrast to her parties views. The political future will be her ability to form a collation with other parties has cast a cloud over a normally solid bloc. According to the European Union’s statistics office in Luxembourg, economic expansion across the block was solid with GDP still on the rise across the block and very positive business growth and sentiment in the Euro block remains well intact and in positive territory. Across the major seven economies, the economic sentiment and capacity utilization in manufacturing were at levels not seen over the last six-years; Industrial and service sector confidence continued to remain in positive territory across most of the sectors. Italy has proved to be stellar in leading export growth in certain market segments, wine tops the list as well as in France where seasonality of holiday wine purchases is lifting the spirits of wineries and consumers alike. The Euro inflation rate remained unchanged 1.4% from November 2017, which along with U.K., US counterparts; the Central Bank is concerned about as it inflation undershoots the target rate. The Euro block unemployment rate is forecast to remain unchanged with a labor force participation rate across bloc nations that continue to edge up. Overall economic performance is forecast to show solid improvement sufficient enough for the ECB to continue ongoing discussions on the mechanical and operational policy discussions to trim down the bank’s balance sheet. Euro exchanges continue to be very vibrant posting solid gains across much of the block and across broader sectors. The ECB meeting is expected to yield results to 2018 expectations on monetary policy, specifically the bond purchases program.
The Japanese economy continued to post relative good economic expansion with positive business sentiment among large export driven companies. The BOJ continues finds itself in a rather dire straits position; interest rates have been in check and will continue to be in check at least thru 2019 according to market sources as the BOJ is expected to continue its ongoing quantitative asset purchases. The BOJ board members cite overall fragile economic outlook. Domestic demand for goods and services in Japan appears to be trending slightly downward, the mix of data suggest the main reason is because the Labor Union has refused Prime Minister Abe’s request to increase monthly wages, noting Japanese companies look to book record profits this year. The labor market despite being extremely tight at full employment; shows no sign of wage increases, leading some economists to think labor mobility is nonexistent and gives rational thought that company loyalty at whatever cost still is favored, which continues to puzzle social scientists and economists.