From a performance perspective, January could be considered fairly mundane with the UK top 100 companies retreating -0.57% while the broader UK All Share index fared marginally better with a -0.33% decline. Despite end of month negative figures, the UK top 100 companies hit another closing high of 7337.81, mirroring new record highs reached in the US for the S&P 500 and Dow Jones Industrial Average indices.
Midway through January there was somewhat of a sentiment shift in UK markets following Prime Minister May’s speech confirming that she will seek a hard Brexit, and latterly the Supreme Court’s ruling that any Brexit plan would have to be ratified by Parliament. Sterling, which still remains sensitive to any comments regarding Brexit, strengthened 2.89% against the US dollar, no doubt buoyed by President Trump’s comments regarding his desire for a weaker US dollar.
The Office for National Statistics confirmed that the UK economy expanded 0.6% over the final quarter, ahead of the 0.5% reported for the same period last year. This was due in the most part to strong growth in the services sector which contributed 0.8% over the period. Construction added 0.1% whilst the industrial and manufacturing sectors were flat for the quarter. Over 2016 the UK economy was estimated to have grown by 2%, marginally behind 2015 which expanded by 2.2%. The UK Manufacturing Purchasing Managers’ Index (PMI) figure was 55.9 In January, although down from 56.1 in the previous month is still well ahead of the longer term average measure of 51.5. Growth for the upcoming 12 months face some headwinds as higher oil costs, higher import costs and a weak currency opens the door to a potentially sharp rise in the inflation rate which currently sits at 1.6%.
The new year started with some positive economic data. Confidence remains good with European Manufacturing PMI’s higher than expected and improvement in business confidence. More importantly there was a pickup in January inflation, up to 1.8% year-on-year and higher than expected GDP for the final quarter of 2016, up 1.8% year on year. There was also another decline in the unemployment rate for December across all countries bar Italy. European unemployment is now down to 9.6% after peaking at 12.2% in October 2013.
The stock market has not been so optimistic with concern over European election developments and Europe’s future economic relationship with the US. The Euro Stoxx 50 Index was down 0.96% for the month of January in local currency. For UK investors, sterling strengthened in January, which meant the Euro Stoxx 50 index in sterling terms, was down 1.29% on the month.
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