Craig Reeves, CEO and founder of Prestige Asset Management wrote the following article.
Thursday the 24th of August 2017, Craig is visiting Zurich. If you are a qualified investor and would like to meet him, please let us know and send us a message.
Yen, the japanese currency, is the safe haven, or better, is the safest of them all, according to a correlation analysis by Goldman Sachs Group Inc. economists. Goldman economists, led by Kevin Daly, compared daily and monthly fluctuations for a basket of 28 market currencies across two five-year periods from 2007 to 2011 and 2012 to 2016.
“The yen is the most ‘safe-haven’ of ‘safe-haven’ currencies, with the Swiss franc and U.S. dollar vying for second place,” the Goldman analysis found. “At the other end of the spectrum, a number of different emerging-market currencies vie for the title of most ‘risk-on’ currency. These correlations appear relatively stable over time, with the notable exception of some of the U.S. dollar’s relationships.”
From the growth point of view, Brexit can affect the economy in two ways. In the near term, uncertainty from Brexit and rising inflation from the reduction in Sterling trade since the vote could cause a modest demand-side shock. But that effect has been much smaller than expected. In fact, the economy has outperformed the non-Brexit scenarios. Of course, we do not know how the economy would have performed had the UK not voted to leave. That seems to be an absence of the short-term demand-side shock. I am confident that the UK can continue to enjoy a broad-base expansion over the next couple of years. I see probably 2% real GDP growth this year followed by 1.7% next year.
The last few days have seen some slight losses on the part of the FAANG stocks, which the media appear to have greatly exaggerated as if it was something extraordinary that the market could not continue its upward trend and have Tesla quickly reach the $1,000.00 mark. The Fed confidently raised interest rates again, which resulted in a stronger dollar on Forex markets for the time being.
According to the latest reports, the European economy grew at a stronger pace than the US economy did. Do you agree that further trend is going to be the same?
I do not think so, though it is mostly because the US is likely going to pick back up again. What we saw in the first quarter, and this is something we have seen over the past few years, is that the US has a relatively weak first quarter. This could mean that growth is not going to be as spectacular as it has been over the past years in the United States. Nevertheless, I would say that, overall, the US economy is likely to pick up steam again in the Q2 and Q3. On the other hand, the Euro zone economy is performing quite steadily, while growth is sweeping quite robust at the moment. Still, I do not think that it will be able to keep up with the pace that we have seen in the United States. Currently, we expect the Euro zone growth to come in just under 2% over the year, while we think the United States GDP could hit 2.3% or maybe even 2.5% in 2017.
The idea of Italy leaving the eurozone, or ‘Italexit’, "does not have the slightest basis" in fact, European Central Bank President Mario Draghi said Wednesday in a verbal tussle with a Dutch MP. Draghi repeated that the euro is "irrevocable, and that’s what the Treaty says".
Confronted with the possibility of the Netherlands quitting Europe’s monetary union by Eurosceptic MP Thierry Baudet, an angry Mr Draghi said: “The euro is irrevocable. This is the treaty. I will not speculate on something that has no basis.”
Highlighting the ECB’s role in the eurozone’s economic recovery, he said policies had helped create 4.5m jobs. “That’s the reality, the rest is speculation." In other remarks, Draghi said it was "up to the eurozone countries to prepare for the end of quantitative easing".
According to latest reports, a slowdown in the housing market and a weakness in the construction industry only worsened amid higher costs. In your point of view, should we expect a further decrease in the UK economy? Why?
Our base case scenario is that we are expecting a slowdown in the UK economy in 2017. If we ask what has been propping the UK economy up since Brexit, the answer would be the consumer spending story; we have seen consumption being fairly resilient since Brexit. On the other hand, we have seen investment taper a little bit less, therefore, what has been driving the UK economy is really consumer spending.
Though, at this point, the outlook looks pretty bleak, especially if we take into account the fact that we have got a squeeze in household consumer incomes, coming from higher fuel prices, higher inflation, and a lack of wage inflation. Real incomes are being squeezed, which in theory leads to weaker consumer spending power. Thus, the channel which has been propping up the UK growth is likely to weaken a little bit going into 2017.
The Euro continued to book gains against the US Dollar during the early hours of Friday’s trading session, as the currency exchange rate attempted to break through the resistance put up by the 55-day SMA, which was located at 1.0593. The pair already attempted to move higher during Thursday’s trading. However, it failed to pass the SMA. Due to that and the fact that the weekly PP is located just above the SMA at 1.0604, it is most likely that the currency pair will fail once more and retreat lower by the end of Friday’s trading session.
