Market Commentary – January 2015

The major Economic story in January was the announcement of 1 trillion euros of stimulus by the ECB in an attempt to boost economic growth.

This helped push European equities 4% higher this month, although it seemed global equities were not particularly surprised by the announcement. The MSCI World Index, which fell by 0.55% in January, was weighed down by a 3% decline in the US market. The UK showed further signs of improvement which is highlighted by an encouraging month for equities, climbing nearly 3%.


The UK economy grew by 0.7% in the three months to January, driven by strong growth in the service sector. In addition, economic growth expectations for 2015 have been revised up from 2.6% to 2.9%. The decline in the oil price has caused UK inflation to fall below 1% which has pushed expectations of an interest rate rise further back. If oil prices remain low for the foreseeable future, consumer confidence will be given a significant boost, which could be the main driver of aggregate demand and economic growth over the next year. There are now signs of real wage growth which is also extremely encouraging for the UK economy.


The US market underperformed in January, falling by approximately 3%, however, a strong dollar brought positive returns for sterling investors. The US economy continues to improve and growth expectations for 2015 are encouraging, which should benefit the US equity market. Furthermore, job creation continues to boost the outlook for the economy. However, there are concerns over the strengthening dollar, particularly with respect to the Euro, which might harm competitiveness of US exports.


The Swiss National Bank made a surprise move in the middle of the month when they abandoned their long standing currency peg against the euro, which caused a sharp appreciation of 30% in the Swiss Franc with respect to the Euro and a 10% fall in the Swiss stock market.

European markets seemed to have shrugged off any consternation following the Greek election. Despite Greece being a relatively small member of the Eurozone, there is still significant uncertainty over a possible Greek exit and the implications this might have on the future of the Eurozone. Draghi’s QE program will help boost the short run competitiveness of exports through a devalued euro and, as economic theory suggests, inflate the economy, which will help erode the level of real debt owed by Eurozone members. However, it is fundamental that the stimulus injection into the economy is backed up by budgetary and political changes to encourage long term prosperity.


The decline in the oil price appears to have had a greater effect on prices than previously anticipated. China’s annual consumer inflation hit a five year low in January, highlighting the weakening economy and additional weight on firms’ profit margins. The manufacturing industry has experienced excess supply and a lack of demand which has driven both prices and production down. This has led to an increase in pressure on policy makers to stave off disinflation.

Japan seems to be recovering after dipping into recession in 2014, as there are signs of manufacturing growth and there has been a fall in unemployment to 3.4%; the lowest it has been since 1997. Japanese equities rose by just over 1% this month, but this was magnified to over 7% for sterling investors due to the favourable exchange rate.

Emerging Markets

Many emerging market economies have been on the verge of an economic crisis having had a difficult period since the oil price crashed and China’s growth started to slow down. Russia’s GDP is expected to shrink by at least 5% this year and the rouble has plummeted towards a record low. Consumer and business confidence continues to slide and companies have been cut off from global financial markets. As a result we remain very cautious over emerging markets.


We are optimistic about the UK and US economies which continue to boast positive economic data. However, we expect further volatility of markets throughout the year, given the array of downside economic risks which persist. In addition, uncertainty over the UK election in May will no doubt be reciprocated by market sentiment over the coming months.

Despite concerns over the future of the Eurozone, we expect European markets to benefit from the QE stimulus and a devalued euro will boost competitiveness for manufacturers. Although, clearly the ongoing issues in Europe will continue to provide a headwind to global markets. In addition, China’s slowdown remains a worry for the global economy, in particular for the prospects of emerging markets.

Low oil prices are being reflected by low inflation across many global economies and consumer confidence is becoming more pronounced in many regions, particularly in the US. Consumer spending is a large component of aggregate demand which will significantly enhance GDP growth. Persisting low inflation will not help erode real debt levels, but it will boost real GDP and purchasing power of consumers.

Please note, our Investment Commentary is our view of markets and does not constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch.

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