UK

• Feb 28th – the European Union’s financial services chief, warned today that Brussels will be stringent in assessing any application by Britain to use EU “equivalence” rules to secure financial-market access after Brexit.
• This April theour business rates bill is due to rise, by a whopping 45 per cent. Average rates will increase by 9 per cent in London
• Expansion in the UK’s services sector was much slower than expected in February, in a potential sign that the economy is losing momentum after its unexpected resilience in 2016. Businesses reported that higher costs and squeezed consumer finances dragged on growth. The result marks the first time the reading has declined for two months in a row since the Brexit vote. weaker consumer spending was a key cause of slower service sector growth, suggesting that household budgets are starting to crack under the strain of higher prices and weak wage growth. Looking ahead, we suspect that consumer services activity will be increasingly pressurised by consumers’ purchasing power weakening over the coming months as inflation rises appreciably and earnings growth is muted. This is likely to cause some consumers to cut back on their discretionary spending, including on services. A recent PMI found that the rate of cost inflation for services businesses had reached its highest level on record, driven by rising energy prices and a falling exchange rate as well as higher payments to workers. Markets reacted negatively to the news, sending the pound to its weakest level against the dollar in more than a month.
• The value of retail sales, excluding food, fell on an annual basis for the first time since 2011 in the three months to the end of February, in another indication that Britain’s consumer spending boom may be losing steam as prices rise. Total household consumption also showed that growth was slowing and spending was increasingly directed towards essential items rather than leisure or discretionary goods and services. The two separate pieces of consumer data added to the evidence that consumer spending growth was slowing in 2017 as household finances were increasingly squeezed by higher prices.
• British manufacturing growth was slower than expected in February, according to a closely watched index, but nonetheless marked a seventh consecutive month of expansion. The weaker pound helped an improvement in overseas demand, Markit said, with a “sharp acceleration” in the rate of increase of new export business offsetting a slowdown in growth of new domestic business.
• January was the best month for UK mortgage approvals since well before the EU referendum, according the Bank of England, highlighting the strength of demand in Britain’s housing market despite fears of slowing economic growth. This is despite Consumer lending growth slowing in the three months to January.
• Foreign investors dumped their holdings of UK government bonds at the fastest pace in nearly three years at the start of 2017. Better yields to be earnt in equities
• The OECD now predicts UK growth will hit 1.6 per cent this year, up from its prior prediction of 1.2 per cent in November. A growth rate of 1.6 per cent this year for the UK economy would also be a slower rate than last year’s 1.8 per cent expansion. UK growth is expected to ease further as rising inflation weighs on real incomes and consumption, and business investment weakens amidst uncertainty about the United Kingdom’s future trading relations with its partners.
• There has been a surge in online shopping for UK goods after the Brexit vote sparked a sharp depreciation in the pound, according to PayPal, with overseas consumers taking advantage of the fact that prices for many UK products have remained stable thanks to retailers and suppliers hedging their currency risk. Small and medium-sized businesses in the UK saw their international PayPal sales rise 34 per cent from July to December 2016, compared with the same period in 2015.
• Theresa May prepares to trigger Article 50 and begin negotiations with European leaders.

The Budget

  • UK economic growth hiked to 2 per cent from 1.4 per cent this year but the forecast growth rate until 2021 remains the same
  • The fall in sterling will push up inflation above the Bank of England’s 2 per cent target this year, with inflation averaging and peaking at 2.4 per cent this year. It will fall slightly to an average of 2.3 per cent in 2018 before hitting 2 per cent from 2019 onwards.

    Mr Hammond says taxation on the self-employed and employed should be more closely aligned, and that his changes make the system fairer.

  • National insurance for self-employed to increase by 1 percentage point to 10 per cent from April next year
  • Owners of limited companies and shareholder investors affected by a reduction in the tax free dividend from £5k to £2k
  • £425m investment in the NHS in the next three years
  • A £1k discount on business rates for around 90 per cent of pubs in the country
  • A £300m fund for businesses facing steep increases in business rates

       

US

  • Feb 28th – The US economy closed out 2016 with steady, albeit unspectacular growth, according to a revised report. The gross domestic product, the country’s total output of goods and services, grew at an annualised pace of 1.9 per cent during the fourth quarter, unchanged from a previous reading. While the figure exceeds the pace of growth seen during the first half of 2016, it is a marked slowdown from the 3.5 per cent growth recorded during the third quarter. Although consumer spending grew at a 3 per cent rate, that gain was offset by the drop in in exports due to a strong Dollar.
  • President Donald Trump’s speech to congress offered few specifics on his economic plans regarding tax cuts and infrastructure spending, with according to a CNN poll conducted after the speech, 78 per cent of viewers had a positive impression of Mr Trump’s address. Investors are instead focusing on comments from the Fed, who said the case for adding to the December 2016 rate increase had become ‘a lot more compelling’. Market odds of a March rate rise in the US hit 90% with yellen providing positive signals.

    This has helped banking stocks who saw share price increases including Goldman Sachs, JPMorgan and Morgan Stanley.

    Supporting the case for a rate rise;
    – Inflation is now at record highs in the US
    – A buoyant stock market and improving US economic growth have given the Federal Reserve cover to lift interest rates three times this year.
    – US wage growth accelerated in February, while job growth continued apace, bolstering the case for a Federal Reserve rate rise next week

 

  • The number of Americans applying for first-time unemployment benefits fell to a near 44- year low last week, reinforcing the picture painted by recent economic indicators of continued strength in the US labor market. US adds 235,000 jobs in February, wage growth picks up.
  • After his first attempt hit a series of legal hurdles, President Donald Trump on Monday March 6th signed a revised version of a controversial travel ban targeting refugee admissions and travel from some 6 Muslim-majority countries. This takes effect on March 16th and will be challenged.
  • US bank shares took a hit as bringing back Glass-Steagall is still on President Donald Trump’s policy to-do list. In response to a question on Thursday about whether Mr Trump remains committed to a campaign promise to revisit the law — which prohibited commercial deposit-holding banks from engaging in riskier investment banking activities — White House press secretary Sean Spicer said that he was. This is by comparison to financials having been boosted in the past by some of Mr Trump’s other policy proclamations, including an executive order authorising the review of Dodd-Frank financial regulations passed in response to the 2008 financial crisis.

 


Brent Crude Oil

Despite an Opec deal in place, the U.S. Department of Energy reported a much larger increase than expected in domestic crude inventories and it was reported that US oil inventories had increased for a ninth week running. Contributing to the gains in crude oil stocks were rising estimates of imports landing from Saudi Arabia, Iraq and Nigeria, all members of Opec. As a result, the oil price had gone from $55/56 per barrel to falling more than 5 percent on March 7th, hitting roughly three-month lows.


Gold

The price of gold has fallen dramatically in March as many are preparing for an interest rate hike by the Fed next week. The gold price tends to fall when rates are set to rise as the metal does not offer a yield and so loses out to income-bearing assets.

 

Equity Markets

S&P continues to rise, as does the FTSE 100 and 250 on the back of a deflated pound that seems to persist, especially as inflation has started to kick in and indicators are now showing consumers are holding back on spending/growth is slowing in the services sector.

 

 

 

 

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