Global growth is slowing down and Italy is in a technical recession, with America not far behind.
Net fund sales (9AUM) plummeted £41.3bn in 2018.
Brexit: With less than 45 days to go before the Brexit deadline and with the next Brexit vote possibly happening in February or March, the relationship with the EU is somewhat tense, with both parties claiming to have constructive conversations! At this stage, nobody really knows where we shall end up but Brexit's impact on the UK economy is becoming more evident.
UK economy: Growth in 2018 unfortunately ended up at 1.4%, the slowest for 6 years and is expected to fall to 1.2% in 2019 and well below the BoE’s annual target of 1.7%. In December, Inflation (CPI) was down to 2%, meanwhile unemployment maintained stable at 4%. Currently annual wage growth is at 3.4% to December.
To summarise, Brexit negotiations have had a direct impact on the UK economy and with such an unstable environment, economic predictions are almost impossible. However, financial markets including the GBP remain very volatile and we do not believe that the BoE will raise rates on the 21st of March.
Money Market fund managers (01/2019) £ weighted average maturity (WAM) is > than 45 days (next BoE meeting 21/03/2019) so the market is not favouring a rate increase.
- EU zone (19): With inflation at 1.6%, it is expected to decrease to 1.4% in January 2019. Additionally, unemployment remains unchanged at 7.9% (lowest since 2008) but the Euro zone's PMI has further decreased to 50.5% in January, which is the lowest for 32 months. Furthermore, growth is down from 1.6% to 1.2% by the 4th quarter of 2018.
- Italy is in technical recession with 2 consecutive quarters of negative growth. 2019's growth is expected to be around 0.2% (EU forecast) which is down from recent expectations of +1.2%. As a result, Italy's 10 year government bond rose again back to 2.954%
- France: Annual growth was 1.5% lower than expectations (1.6%) and expects its deficit to rise above the 3% limit at 3.2% in 2019, due to the on-going anti-government protests. PMI dropped further to 48.7% in December and Inflation at 1.85% year to year.
- Germany: Annual inflation is down at 1.72% but purchasing manager index (PMI) is also down further to 49.7%. With growth at 1.5% in 2018 this was the lowest since 2013.
- So, the outlook for Euro zone has deteriorated. We still believe that the ECB will change its rate policy but late 2019 or early 2020.
- USA: Economic data looked positive for 2018 but a potential second shut down and outcome of potential trade agreement with China will impact negatively its economy. Annual growth was at 3% in 2018 but expected to slow down to 2.3% in 2019 and even 1.7% in 2020. Unemployment rose to 4% but with wage growth at 3.2% year-on-year and Inflation down to 1.9%.