January’s UK economic data suggests the manufacturing sector is still growing, albeit slowly, despite prevailing uncertainty. Latest news indicates that the UK economy expanded at its slowest in 6 years in 2018, but Chancellor Phillip Hammond, said that the economy remained “fundamentally strong” and he didn’t expect we were heading towards a recession. Importantly, the service sector continues to perform well.
Meanwhile, the USA’s central bank, the Federal Reserve (Fed), has indicated a possible reversal of intentions to continue raising interest rates incrementally in 2019. Having implied Americans could expect at least three this year, markets are now pricing in no interest rate rises at all until at least 2020. Low interest rates are good for almost everyone, so the news has given US markets a welcome lift following a difficult end to 2018.
In Europe, two consecutive months of negative economic growth pushed Italy into recession at the end of last year. This puts even more pressure on Italy’s government to resolve their ongoing budget issues, as a slowing economy means less taxes and potentially more government borrowing, something the EU won’t be happy to accommodate.
January provided a great start to 2019 for stock markets, with most of the major indices producing strong single-digit positive returns.
UK markets (FTSE 100) finished +3.54% higher, boosted in part by strong performance in commodity-based sectors, such as mining (Rio Tinto finished the month up +11.30%). Commodities sectors, in turn, benefitted from price increases prompted by the US Fed’s interest rate about-turn.
As the world reserve currency, the strength or weakness of the US Dollar has implications for everyone, which is why the Fed’s interest rate policy u-turn is so significant. As well as helping US markets to finish January up +8% – Its best for many months – the interest rate decision is helping to boost many risk asset prices, like shares and commodities globally, giving the whole world a lift. US markets also got a helping hand from the so-called FAANG group (Facebook, Apple, Amazon, Netflix and Google), some of whom announced their earnings in January. A relatively small subset of the wider US market, they can nonetheless punch well above their weight, contributing to wider growth with average returns of +16.35% for the month.
Other worldwide stock markets, including Emerging Markets (+9.11%) and Asia Pacific (+7.34%) also achieved impressive returns, being strongly influenced by the aforementioned US monetary policy. Japan – an economy less tied to the fate of the US Dollar and commodities and more to global trade – enjoyed a more modest return of +3.80%.
In corporate news, Netflix, part of the FAANG club gained 26.84% on its share price as the company’s subscriber count surpassed expectations, ending the year with over 139 million users paying for the TV streaming service.
Brexit uncertainties weighed heavily on the Pound’s performance which finished January weaker against most major global currencies, including the Japanese Yen (-1.99%), US Dollar (-2.71%), and the Euro (-2.87%).
Investment type performance breakdown
Performance was positive across all investment types in our plans this month, with commodities up +4.10%, shares +5.08% higher and global property soaring +7.51%. Even bonds, that typically move in the opposite direction to riskier assets finished up +0.99%.
Summary with Plan details
Favourable comments from the world’s most influential Central Bank and strong company earnings in spite of political headwinds in the form of trade wars and Brexit, lead to January providing an encouraging start to the year for our investors.
As ever, our investment team remains focused on keeping your investment plan on track and will be ready to act as opportunities arise.
The figures shown are based on a medium-risk (Confident) investment Plan.
Your investments can go down as well as up and you could get back less than you put in.