‘An investment in knowledge pays the best interest’ Benjamin Franklin.

The three major economies covered are:

• Eurozone area
• US economy
• UK economy

We have summarised the key economic indicators, including what they mean, why they are important and what it means to you.

• Central bank policies
• Manufacturing PMI
• Services PMI
• GDP
• Inflation rate
• Unemployment rate
• Summary

Whether you are actively trading, investing, saving for retirement, thinking of moving house, or want better returns for your money.  Central bank policies, political risks, the health of the domestic and global economy all play a part in these very important aspects of our lives.

There is no magic bullet; it is a journey, one of continuous improvement, a journey towards Funding Your Retirement and financial self-sufficiency. The information in these newsletters and future newsletters should help you in the journey.

Summary of Economic Indicators Covered in this Newsletter.

Central Bank:

A central bank’s core function is to conduct monetary policy that prevents high inflation, stabilizes the currency, stimulates the economy, and regulates its member banks. By easing or tightening the money supply through it’s various tools, it can increase the money supply creating economic expansion, increasing jobs, thus creating demand and inflation. It also acts as a lender of last resort to distressed banks and governments.

PMI:

The Purchasing Managers Index (PMI) is an indicator of economic activity. Purchasing managers from the services and manufacturing industry report their business conditions each month. A score above 50 indicates expansion and growth while below 50 indicates that the industry is contracting. The PMI index is used by governments, central banks, and the wider investing community.

GDP:

Gross Domestic Product (GDP) is a measurement of the value of all goods and services produced in a given country. It is used as the primary indicator to determine if a nation is in recession or expansion. GDP is a lagging indicator of a financial quarter behind, and is closely followed by governments, central banks, and the investing community.

Inflation:

Inflation is the rate at which the prices for goods and services increase. It is one of the key measures of financial wellbeing because it affects what consumers can buy for their money

Unemployment Rate:

The unemployment rate is a share of the workforce who are eligible for work but are jobless. It is a lagging indicator and provides a key measure of the health of the economy.

UK Economic Outlook

Bank Of England (BOE)
BOE Govenor	Current rate	Previous	Date Changed	Next Announcement
Mark Carney	0.750%	0.500%	02/11/2017	26/03/2020

On the 30th Januray, the BOE monetary policy committee voted in favour of holding rates 7-2. The Bank predicts that UK growth will remain weak next year (0.75%) before picking up modestly in 2021 (1.5%) and again in 2022 (1.75%).

Mark Carney didn’t give any guidance one way or another during the press conference, as this was his last press conference before the BOE governor Andrew Baily takes over.

UK Manufacturing PMI
Actual	Previous	Next Release	Highest	Lowest
49.8	47.5	21/02/2020	61.5	34.40

Manufacturing PMI beat expectations, moving to a nine-month high. Combined with services PMI 16 months high, the UK economy is making steady progress towards growth.

UK Services PMI
Actual	Previous	Next Release	Highest	Lowest
52.9	50.0	21/02/2020	62.5	40.10

Services PMI beat expectations climbing to a 16 month high. Above 50, signals growth.

UK GDP Growth Rate
Q4 2019	Q3 2019	Q2 2019	Q1 2019	Q4 2018
Release Date 11/02/2020	0.4%	-0.2%	0.6%	0.2%

Brexit and political uncertainty have influenced business confidence in the UK, with the Brexit vote passed and a majority government in place creating political stability. 2020 will be an interesting year for the UK and GBP.

UK GDP Growth Rate
Jan 2020	Dec 2019	Nov 2019	Oct 2019	Sept 2019
Release Date 19/02/2020	1.3%	1.5%	1.5%	1.7%

With inflation way below the BOE’s target of 2%, monetary policy is likely to stay loose for some time. Low inflation and low-interest rates are good for the stock market.

UK Unemployment Rate
Dec 2019	Nov 2019	Oct 2019	Sep 2019	Aug 2019
Release Date 18/02/2020	3.8%	3.8%	3.8%	3.9%

The Office for National Statistics (ONS) showed a record 32.9 million people aged 16 and over are now in employment; 359,000 more than a year earlier. The ONS data revealed that there are currently an estimated 805,000 vacancies in the UK. A positive outlook for the UK job market.

FTSE 100 Index Snapshot
Date	Current Price	4-week TD	1 year TD	5 year TD
27/01/2020	7286.01	3.1%	18.9%	7.2%

GBP / USD (Cable)
Date	Current Price	Day Low / High	52 Week Low  High
01/02/2020	1.3203	1.3203 / 1.3207	1.1960 / 1.3515

 

US Economic Outlook

Federal Reserve (FED)
FED Govenor	Current Rate	Previous	Date Changed	Next Announcement
Jerome Powell	1.7500%	2.000%	30/10/2019	18/3/2020

On the 29th, Jerome Powell delivered the first FOMC press conference of 2020. After the statement was delivered, it became clear that there was very little deviation from the previous statement, with the FED emphasizing that interest rates would be left alone, even hinting that they would be left alone all year.

US Manufacturing PMI
Actual	Previous	Next Release	Highest	Lowest
51.70	52.40	03/02/2020	57.90	50.30

Despite January’s drop from December’s 52.40 to January’s 51.70, the US manufacturing PMI index has remained consistently above 50 since September 2019.  In comparison to the EU and the UK, the US economy has been fairly robust.

US Services PMI
Actual	Previous	Next Release	Highest	Lowest
53.20	52.80	05/02/2020	61.00	49.30

The US services sector expanded more than expected, showing a strong services PMI. The services sector expanded at the fastest pace in January for the past ten months.

US GDP Growth Rate q/q
Q4 2019	Q3 2019	Q2 2019	Q1 2019	Q4 2018
2.1% Prelimanary	2.1%	2%	3.1%	2.2%

 The US quarterly GDP at 2.1% compared to China’s 6% on the face of it doesn’t look all that impressive.  However, compared to the EU at 0.2% and the UK at 0.4%, it is very good indeed, and something that Boris Johnson and the EU Commission would happily take right now. With interest rates looking like they will remain low for 2020, many economists expect a continuation of the 2% growth path of the US.

US Inflation Rate
Jan 2020	Dec 2019	Nov 2019	Oct 2019	Sept 2019
Release Date 10/02/2020	2.3%	2.1%	1.8%	1.7%

US Inflation climbed to a one year high at 2.3%, the highest since November 2018. The Fed’s target of 2% has now been breached and will be watched closely to make sure that the inflation rate genie is kept firmly in it’s bottle.

US Unemployment Rate
Jan 2020	Dec 2019	Oct 2019	Nov 2019	Sep 2019
Release Date 07/02/2020	3.5%	3.5%	3.6%	3.5%

The lowest unemployment in 50 years. Wages and salaries rose 2.9% in 2019 compared to 3.1% in 2018. The US is a consumer-based economy, and wage growth is fundamental to the GDP of the country. The Fed and US government will want to see these historically low employment numbers transition into higher wages.

SP 500 Index Snapshot
As of Date	Current Price	4-week TD	1 year TD	5 year TD
27/01/2020	3225.52	2.9%	31.84%	11.44%

 

US Dollar (DXY)
Date	Current Price	Day Low / High	52 Week Low  High
01/02/2020	97.36	97.35 / 97.97	95.40 / 99.67

 

Eurozone Economic Outlook

European Central Bank (ECB)
ECB President	Current Rate	Previous	Date Changed	Next Annoucement
Christine Lagarde	0.000%	0.050%	03/10/2015	12/03/2020

The first statement of 2020 by Christine Lagarde was neither hawkish nor dovish, keeping rates unchanged as expected and maintaining its asset purchase program (APP) at a monthly pace of €20 billion each month (QE).

Interestingly in the statement, Christine Lagarde said, the ECB would reconsider the inflation target that defines its core price-stability mandate, along with the effectiveness and potential side-effects of the tools used to achieve it. The framework also set up a battle plan to advise central banks how to tackle climate change, by promising to examine how other considerations such as financial stability, employment and environmental sustainability can be relevant in pursuing the ECB’s mandate.” However, this new mandate will not be completed until December 2020.

The ECB is trapped within low growth and low inflation for several years, since starting their 0% policy back in 2016, implying that rates will stay very low for at least another year. We are now in 2020, and the ECB has kept rates very, very low for some time.

Whilst this may be great for borrowers as it means cheap borrowing costs for governments, banks, companies and consumers, it makes funding retirements challenging for savers and pension funds.

Euro Area  Manufacturing PMI
Actual	Previous	Next Release	Highest	Lowest
47.80	46.30	03/02/2020	60.60	33.50

The manufacturing PMI hasn’t risen above 50 since January 2019, indicating slow growth and contraction in the European manufacturing base.  This will have an impact on wages, inflation, and jobs, leading to a loose monetary policy from the ECB such as low-interest rates and the continuation of the asset purchasing program (QE).

Euro Area Services PMI
Actual	Previous	Next Release	Highest	Lowest
52.20	52.80	05/02/2020	58.30	39.20

While the services PMI has remained above 50 throughout 2019, the index has been in a steady decline since peaking in June at 53.8.

EU GDP Growth Rate
Q4 2019	Q3 2019	Q2 2019	Q1 2019	Q4 2018
0.1%	0.3%	0.2%	0.4%	0.2%

On a year-on-year basis, the Eurozone GDP growth slowed from 1.2% to 1%.  France’s GDP fell to -0.1% q on q and Italy came in at -0.3%. Economists are expecting the Eurozone to struggle in 2020, especially with Trump now setting his eyes firmly on the eurozone for tough trade negotiations.

European Inflation Rate
Jan 2020	Dec 2019	Nov 2019	Oct 2019	Sept 2019
1.4%	1.3%	1%	0.7%	0.8%

The Eurozone inflation rate has been steadily climbing since the low of October. Although we can see a spike in inflation, the consistently low inflation will add to the case of keeping rates low for some time to come.

European Unemployment Rate
Jan 2019	Dec 2019	Nov 2019	Oct 2019	Sep 2019
Release Date 03/03/2020	7.4%	7.5%	7.5%	7.5%

The unemployment rate fell to 7.4% in December 2019 from 7.5% in the previous month, below market expectations of 7.5%. It is the lowest jobless rate since May 2008.

EURO STOXX 50 Stock Market Index
Date	Current Price	4-Week TD	1 Year TD	5 Year TD
01/02/2020	3640.91	-3.51%	-2.78%	7.42%

EUR / USD (Euro)
Date	Current Price	Day Low / High	52 Week Low  High
01/02/2020	1.1093	1.1092 / 1.1097	1.0880 / 1.1489

 

What Does all this Mean?

Whether you are investing, trading, saving for retirement, thinking of re-mortgaging, or moving house, having a clear understanding of how the domestic and global economy is performing will only improve your decision making.

How does this transfer into trading and investing decisions?

The data is showing the strength of the US economy, and the weakness of the eurozone, with the UK somewhere in the middle.

This information becomes the basis for assessing the longer-term trend, such as stocks, stock indices, and currencies.  A strong US economy and weak eurozone were the overall bias throughout 2019 with the price of the EUR/USD at 1.2500 in January 2019, and finishing the year at 1.1000 – a drop of 1,500 pips.

The British pound has also suffered against a strong dollar, in large part due to Brexit as well as the strong US economy.  However, with the political risks of Brexit becoming less and less now, there are good signs that the currency and the economy are gaining strength. The British pound is also cheap in comparison to twelve months and two years ago.

Of course, nothing travels in a straight line, and the data can always change.  But for 2020, the best house in a bad neighborhood is still the US economy.

We hope you have a great day, and a prosperous 2020.

Kind regards

The Fund Your Retirement Team