Skipton Financial Services
Wednesday, November 23, 2016 - 16:02

Market Update

The UK's decision to leave the EU is continuing to generate lots of attention domestically -  But what about the global effects?

Immediately after the vote, stock markets across Europe declined, major US indices fell by about five percent, and Asian countries particularly suffered a negative reaction – since the UK is one of the largest importers from areas such as China and Japan.

However, only a few days after the outcome, worldwide stock markets bounced back and indices, such as the FTSE 100TM, recovered the ground they’d lost.

Yet despite the situation taking a positive turn, the unprecedented nature of Brexit means there’s still uncertainty on how economic events will unfold over the coming months. So who knows what the near future holds?

And it hasn’t just been Brexit dominating the headlines this year. Here we look at what other events have been happening across the world.

The US

The world's eyes are fixed on the US, where in November Donald Trump surprised the polls to win the election to become the next president. Trump pipped Hilary Clinton to the post in a hard - fought divisive campaign.

Despite the inevitable uncertainty the months leading up to the election have brought, US stock markets have remained remarkably resilient - especially given mixed economic data.

Ultimately, it’s unknown what economic impact the result of the election could have, should either candidate win. And whoever prevails could face a huge challenge in controlling the country’s national debt – preventing it from suffering a credit rating downgrade.

Elsewhere in the US…

The potential of an interest rate rise  has receeded for now – due to the lack of jobs being added to the US economy.

The confirmed number of new jobs in August was 150,000 – lower than the Department of Labor’s forecasted amount of 180,000. Despite, ahead of this announcement, a hint from the US Federal Reserve about a rate rise before the end of the year, analysts said that the weaker job numbers would probably keep rates on hold.

However, that’s not to say there won’t be a rise before the year is out. Commentators have said it could happen, depending on the outcome of November’s election. Should a rise go ahead this year, it will be the second in 12 months, as last December, the US Federal Reserve raised rates for the first time in almost a decade – from 0.25% to 0.5%.

Brazil

This summer the world’s eyes laid firmly on the Olympics in Rio De Janeiro. But away from the track there was plenty of focus around the impeachment of Brazil’s president, Dilma Rousseff, that began late last year and led to her being dismissed this September.

This is based on accusations that Rousseff broke economic laws by disguising the size of the country’s budget deficit – to make the economy look healthier – in the run-up to her 2014 re-election.

Although Rousseff denies these allegations and is currently appealing against her dismissal, critics claim she borrowed far more money from the state banks than her predecessors – to fill budget gaps and hide the real state of Brazil’s economy.

Despite question marks around the leadership of the country, Brazil’s main stockmarket has taken a positive turn, being up 29.5% over the last year in local currency (since 30 September 2015 to 30 September 2016). This is certainly a refreshing change for the country, whose economy has struggled for a number of years.

China

With so much focus on Brexit and the US this year, discussions around the Chinese economy seem to have taken a back seat.

So if you’re wondering what’s happening, China’s economy is still slowing – with its annual Gross Domestic Product (GDP) falling this year to levels unseen since 1990.

In the three months to the end of June this year, it’s expected to have expanded by 6.7%, compared with the same period a year earlier, according to a CNNMoney survey of economists. This is the weakest pace of growth China has experienced in seven years, since the dark days of the global 2009 financial crisis.

Economists expect that in 2016 as a whole, GDP growth will fall to 6.5%, and looking ahead, it’s expected to fall even further to 6.3% in 2017 – a far cry from the days of 10% growth or more.

However, despite its slowing GDP, it hasn’t yet had the ‘hard landing’ effect many commentators warned, and has only gradually dropped over the last four years. It’s also important to remember that the country’s economy still remains one of the largest in the world, which is why any negative movements to it can have a significant global impact.

Chief economist Kevin Lau from financial corporation Daiwa said, “The general mood about China continues to be negative. There is little disagreement that the problems in China are serious and have profound implications for global markets.”

Mark Elliott, Head of Technical Research

Focus over the last few months has understandably been around Brexit. And until this becomes old news and the economic picture starts to become clearer, challenges and opportunities will continue to impact on investment markets.

However, looking through the noise, our fund managers fully consider the wider and long-term picture – which we encourage our investors to focus on, and not get carried away by short-term influences on the market.

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