In our monthly investment update for December 2015, we review the investment markets and economy, giving you the key information you need.
The FTSE 100 index of leading UK company shares started December at 6,356.10, falling modestly by 4.99 points or 0.08% during November.
The index finished the month with a slight fall, lagging behind strong gains in Eurozone shares. By comparison to the small fall in the FTSE 100 in November, the Euro STOXX 50 finished the month up by 2.2%.
The euro currency fell ahead of a meeting of the European Central Bank later this week, where stimulus measures are widely expected to be extended. As a result of the falling euro, shares in exporters strengthened by close to 1%.
Constituent parts of the FTSE 100 index experienced a shakeup at the start of December, as results of its quarterly index review were due to be announced. Payments processor Worldpay, sub-prime lender Provident Financial and business support services group DCC were all scheduled for promotion based on their market capitalisation at the end of November.
The aerospace and defence firm Meggitt looks likely to be demoted from the FTSE 100 along with security group G4S and possibly even supermarket giant Morrisons.
Another factor influencing investor sentiment in FTSE 100 stocks was a successful pass for banking stocks after the latest Bank of England ‘stress tests’. Lenders excluding RBS and Standard Chartered did not need to take any action to improve their capital ratios in order to pass this latest series of stress tests.
The Chinese economy was showing further signs of weakness in November, with factory activity data reporting a three-year low, the weakest reading of the purchasing managers’ index in Beijing since August 2012. Chinese stocks responded positively to the news on hopes that the Chinese Central Bank will introduce more growth boosting measures.
Price inflation in the UK, as measured by the Consumer Prices Index (CPI), remained negative in October, falling by 0.1% over the year. This was the first time since the index was created in 1997 that CPI price inflation has fallen in two consecutive months.
CPI inflation fell for two consecutive months for the first time since this index started.Click to tweet
The Retail Prices Index (RPI) measure of price inflation, which excludes certain housing costs, fell from 0.8% in September to 0.7% in October. This represents the lowest level of RPI inflation since November 2009.
Falling price inflation has dampened expectations of an interest rate rise from the Bank of England in the near term, perhaps even raising the prospect of a further rate cut or additional quantitative easing.
UK economic growth of 0.5% between July and September was confirmed by the Office for National Statistics. This represented a slowdown from the 0.7% reported in the second quarter, but means the economy has been growing for eleven consecutive quarters.
One of the reasons for the slowdown in economic growth is a widening trade gap, with the trade balance growing from £7.7bn in the second quarter to £14.2bn in the third. The trade balance is the gap between the level of exports and imports in this country.
A widening trade gap is forcing a slowdown in UK economic growth, keeping interest rates low.Click to tweet
In his Autumn Statement and Spending Review towards the end of November, Chancellor George Osborne reported on the latest forecasts from the Office for Budget Responsibility. Economic growth was revised upwards for this year, at a total of 2.4% in 2015. It is forecast to be 2.4% in 2016 and 2.5% in 2017.
A new poll of housing analysts for Reuters has predicted house prices in Britain will rise more slowly next year than in 2015. This forecast comes despite a lack of new build properties coming onto the market and a continued expectation for record low interest rates.
Despite more modest growth expected, house prices are expected to continue to perform well, rising by 5% this year, 4.3% in 2016 and 3.9% in 2017; rates which comfortably outperform currently levels of price inflation.
The benchmark 10 year UK Gilt yield fell to 1.83% at the start of December.
£1 buys $1.508 or €1.421. The Comex Gold Index is $1,063.50/oz and the Comex Silver Index is $14.08/oz. Brent Crude Oil Futures are currently trading at $44.44 a barrel.