Today we are discussing whether the economic momentum in both the US and the EU markets will continue throughout 2018, focussing on rising investment as well as higher wage awards.
In the US, “soft” momentum indicators such as consumer and business sentiment surveys are at a thirteen year high, and after a reasonable long lead time, “hard” (or real) data has finally started to move higher at a reasonable pace. As consumer confidence has increased, so too have wages, with the latest average hourly earnings reaching a cycle high of 2.9%, increasing expectations of a at least 3 FOMC rate rises this year. However it is too early to tell how the tightening wage market will affect household spending or productivity rates.
As with the US, Eurozone bullish sentiment is translating to stronger real activity and the demand for manufactured good is particularly strong, despite the higher euro. There are nascent signs of the labour market tightening, with evidence of labour shortages but as yet little follow-through to higher pay. Whilst this can underpin consumption, there is no indication that productivity will increase too, which could constrain economic momentum. The Quantitative Easing policy by the European Central Bank is underpinning GDP growth and will continue to do so due mainly to a rise in lending activity.
London & Capital are continuing to be mindful of equity valuations and have structured equity strategies accordingly. The risk of damaging spikes is particularly prevalent, as highlighted by this week’s market fluctuations. We continue to examine market opportunities and threats objectively while respecting the importance of capital preservation.