Global equity prices continued to rise during the second quarter of the year bolstered by growing corporate earnings in both the US and Europe. However, in Sterling terms, US equities lost value as the Pound strengthened against the US Dollar. In fixed income markets mixed messages from the Bank of England’s Monetary Policy Committee members caused Gilt yields to rise meaning that capital values fell.
In the UK, the Prime Minister’s calling of a snap general election backfired leaving a minority Conservative government in place. Consequently Sterling strengthened as the prospects for a ‘hard Brexit’ appeared to decline. The previous weakness of Sterling had contributed to a rise in UK inflation with the latest core CPI figure being 2.6%, a level which is now higher than that of wage increases (2.1%). This difference may put pressure on the UK consumer particularly as we have already seen a fall in personal savings rates and an increase in the use of credit card debt.
Within our portfolios we maintain our slight overweight position to equities as we continue to feel that dividends available from shares will remain attractive to investors in a low interest rate environment. We are however very cautiously positioned in UK equities due to continued uncertainty surrounding Brexit and pressures on household budgets. We remain underweight Gilts albeit we do not expect rate rises in the UK in the short term, and have added exposure to the infrastructure sector.
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