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How Will European Elections and Fed Decisions Affect the UK Market?

UK economy
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February 15, 2017 By: , No Comments

Britain Braces for More Exogenous Shocks to the FTSE 100 Index and the GBP

In 2017, fund managers are expecting European elections to be the biggest bugbear in the global economy. Given that 2016 was the political tsunami that nobody saw coming – what with the Brexit referendum on June 23, 2016 and the US presidential elections on November 8, 2016 – nobody is taking anything for granted. Germany, the Netherlands, and France will be holding elections this year, and nobody is ruling out the possibility of right-wing parties gaining the ascendancy. In fact, the trend since the recovery post the global financial crisis has been one where nationalism trumps socialism. While President Trump is regarded as a populist leader, it is clear that this movement is rooted in patriotism, or what the left decries as nationalism. Precisely how populist leaders will affect the economies of the Eurozone, the United Kingdom and the United States is unknown. We are in the midst of a potential trade war between the US and China, although president Trump recently mended fences with the Chinese leader by accepting a One China Policy. Nevertheless, the stats (210 investment managers surveyed) paint a worrying picture:

  • 13% of respondents are concerned that the global bond markets will crash
  • 32% of respondents are concerned about a trade war between the US and China
  • 36% of respondents are concerned about European elections impacting the markets
  • 34% of investors are concerned that protectionist measures in the US are the biggest threat to the economy

 

Gold Continues to Be a Safe-Haven Asset for Investors in the UK

But there are positive statistics to point to as well. For example, 23% of managers have now taken a bullish position on equities in the EU, up from 17% in January 2017. With regards to investment opportunities in the UK, the EU and the US, gold is increasingly seen as the best hedge against economic uncertainty gripping the markets. Gold is currently trading at $1,225.35 per ounce, up 0.08% or $0.95. Gold has performed poorly over the past 6 months, 1 year and 5 years, with declines of 8.65%, 1.19% and 28.94% respectively. That could well reverse if a risk-off approach is adopted to equities on the FTSE 100 index, the EuroStoxx50 PR and Wall Street indices. It’s interesting to point out that the performance of gold, year on year (2002 through 2017) has been strong in GBP terms. Gold has averaged gains of 12.2% per annum with overall returns of 411%.

 

The number of respondents who perceive gold as the best hedge against economic protectionist measures has increased sharply. Some 15% of investors believe that gold is undervalued, a clear sign that an upside correction is on the cards. Another positive indicator for gold performance is an overvalued USD. Some 28% of managers believe the greenback is overvalued – this is the highest number of managers since 2006 who believe this. The higher the USD is perceived to be, the more likely a correction will happen. The number of traders going long on the greenback is also at historic highs. Some 41% of managers have taken a long position on the greenback. This also applies to the GBP/USD pair, EUR/USD pair, USD/JPY and others. Presently, the GBP/USD pair is trading at 1.2477, down 0.4005% or $0.053. For the year to date, the GBP has appreciated by 1.54% against the greenback.

 

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Brett Chatz

About Brett Chatz

Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for iForexTrader.co.uk.

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