December Commentary

It appears highly likely that the first increase in US interest rates since the financial crash will take place this month. The extent of the increase will be modest and its impact on the financial markets is also likely to be modest given that the move is widely expected and, in our view, largely discounted in fixed interest, equity and currency markets.

Elsewhere, monetary easing continues in the Eurozone, Japan and China, while in the UK, monetary policy is set to remain loose until well into next year – although we may see a temporary increase in reserve requirements of those institutions lending heavily into the housing market.

Aside from monetary policy, we are in a relatively quiet season for Company profit announcements ahead of the year end. However the flow of merger and acquisition activity continues and the general low interest rate environment continues to provide opportunities for corporate fund raising and balance sheet strengthening.

For the moment at least, our broad asset allocation approach remains unchanged. However in portfolios with short time horizons we are inclined to reduce exposure to index linked investments given the probability of only modest increases in the Retail Price Index over the next year or so.