Market commentary: Quarter 1 2017 May 2017

Market commentary: Quarter 1 2017

The UK government triggered Article 50 at the end of March, formally signalling the beginning of the UK’s withdrawal from the EU. The UK services sector expanded robustly, further confirming that the UK economy has been resilient in the aftermath of the Brexit vote. Despite this, forecasters still believe that growth will slow in the latter part of 2017. In more recent news, Theresa May’s call for a snap election on 8 June has come as a surprise to most observers.

In the euro area, inflation has picked up, albeit less than expected as the effect of oil prices has fallen out. Core inflation still remains significantly below the European Central Bank’s 2% target. Populist parties remain prevalent across the euro area, however they have so far failed to win government in any recent elections.

In the US, the initial positive market reaction to Donald Trump’s election appears to have lost steam following his failure to implement key policies, such as healthcare reforms. This led to doubt about his ability to follow through on fiscal stimulus, tax reforms and infrastructure spending until much later than initially promised. The Federal Reserve hiked interest rates by 25bps in March 2017, bringing the policy rate to 1%.

China’s growth target was lowered to 6.5% for 2017, amid expectations of a growth slowdown. Monetary policy is due to tighten over the coming months.

According to recently released data, Japan narrowly avoided another recession in late 2016, technically defined as two consecutive quarters of negative growth. Inflation has risen, however long-term inflation expectations remain well below 2%. Given the low level of inflation, the Bank of Japan has continued its quantitative easing programme.


What should investors do in response to these developments?

Many investors change their portfolios in a bid to take advantage of the latest news. However, it’s very difficult to time these changes effectively.

In practice, shifting your portfolio in response to short-term events may lead to little more than increased trading costs.

We believe that investors will usually be better served by identifying the appropriate asset allocation to suit their goals, then sticking with it and tuning out short-term noise.

Market commentary provided by Vanguard – Quarter 1 2017

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Independent Financial Advisors