Monthly Investment Update January 2016

Monthly Investment Update January 2016The FTSE 100 index of leading UK company shares finished the year at 6,242.30 points, falling by 323.8 points or 4.93% from its opening level 6,566.10 on 2nd January 2015.

During December, the index fell slightly, by 113.8 points or 1.79%, after the sometimes observed ‘Santa rally’ failed to materialise.

Global equity markets had a particularly difficult second half to the year in 2015, with fears of an economic slowdown in China, low commodity prices and interest rate rises in America.

The biggest losers in the FTSE 100 last year were commodity stocks, as natural resources were the worst performing asset class for a third successive year and generated their lowest returns since the global financial crisis in 2008.

Company shares experienced a difficult start to the year too, with new safeguards in the Chinese equity markets contributing to a tumbling share prices and a suspension of trading. The FTSE 100 recorded its second worst ever start to the year, losing £38bn in value in a single day, down 2.4%.

Fears about the Chinese economy continued this week, with the Chinese central bank weakening their currency again and traders worried about geopolitical risks after North Korea claimed to have tested a hydrogen bomb.

Here in the UK, new figures revealed a slight fall in the service sector in December which remains ‘solid’ according to Markit/CIPS service sector purchasing managers’ index (PMI). This index fell to 55.5 from 59.9 in November, staying above average and continuing to represent growth in the sector.

According to Markit, UK growth has “stabilised at a solid pace” supported by “a further strong increase in new business”. However, they also warned there are still “significant” risks to the UK economy.

In Europe, core inflation in the Eurozone slowed down again in December, for the second month in a row, causing concerns for the European Central Bank (ECB). The ECB recently pumped more money into the Eurozone economy in an attempt to kick start growth, but this has not yet had any noticeable impact on inflation.

Headline inflation in the Eurozone, which the EBC target at 2%, remained steady in December at 0.2%. It was however expected to rise to 0.3% and has undershot the Bank target for nearly three years.

In the UK, price inflation rose to 0.1% in November, turning positive for the first time in four months. Transport costs, alcohol and tobacco prices were the main contributors to the rise in the Consumer Prices Index (CPI) measure of price inflation, according to the Office for National Statistics (ONS).

Price inflation as measured by the Retail Prices Index (RPI) was 1.1% in the twelve months to November, up from 0.7% in October. Unlike CPI inflation, RPI includes elements of housing costs, such as mortgage interest payments and council tax.

We can expect another year of very low interest rates in 2016, with most economists expecting a maximum UK interest rate of 1% by the end of the year.

Only five of the 104 economists who responded to a poll by the FT expected to see a rise of more than 0.5% in 2016, with 72 expecting to see modest tightening of monetary policy and 21 expecting no change or even modest loosening, raising the prospect of a further rate cut.

The price of the average home in the UK rose to £196,999 in 2015, according to Nationwide. On a month-on-month basis, the 0.8% increase in house prices in December was the strongest monthly rise since April.

There remain big regional differences, with house prices in London rising by 12.2% last year to an average of around £456,000. Nationwide’s chief economist, Robert Gardner, expects house prices to keep rising, by 3% to 6% in 2016.

The benchmark 10 year UK Gilt yield stands at 1.871%, higher than the start of December.

£1 buys $ 1.46570 or € 1.36600. The Forex Gold Index is $1,078.00 /oz and the Silver Index is $14.01/oz. Brent Crude Oil Futures are currently trading at $35.15 a barrel.

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