Market Commentary: Quarter 3 2017 November 2017

Market Commentary: Quarter 3 2017

UK economic performance was sluggish in the third quarter, with the construction sector particularly weak. Since the Brexit vote, sterling has remained weak, leading to a sharp increase in import prices and inflation. Given the rise in inflation, at the most recent Monetary Policy Committee meeting, the Bank of England offered its strongest indication in a decade that it is poised to raise interest rates. Current market expectations suggest that there may be one interest rate hike at the end of 2017.

The euro area performed strongly in the third quarter, with further improvements in business and consumer confidence. The strong performance of the economy is broad based, with the four major economies, Germany, France, Italy and Spain, all growing at an above trend pace. In Germany, national elections saw Angela Merkel elected as Chancellor for the fourth consecutive term. Merkel received a smaller share of the vote than at the previous election, and will now work to form a coalition government with other parties.

In the US, the economy experienced a slightly softer third quarter with the temporary blowback from the two recent hurricanes. Interest rates remained between 1% and 1.25%, however the Federal Reserve announced that it would start to unwind the stimulus, or quantitative easing, that
was implemented in the early years after the 2008 financial crisis.

In Japan and China, economic, performance has been robust in recent, months. There have, however, been, tensions in Asia regarding North Korea’s nuclear weapons testing over Japanese territory. In response to these tensions, and a bounce in opinion polls, Japanese Prime Minister Shinzo Abe called a snap election which is likely to take place before year-end.

Key takeaway

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 3 2017

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