October Commentary

One of the big debating points in financial markets during the summer months has related to the timing of a rise in US interest rates from their current extremely low levels. Many expected the first modest step to be made in September but this turned out not to be the case: reasons given essentially revolve around the potential for uncertainty in China and emerging markets to have a negative impact on the US economy.

That this issue was sufficient to cause the US Federal Reserve not to take any action in September in respect of an interest rate increase has been taken as a signal that emerging market concerns are perhaps more pressing than had previously been thought to be the case. This has caused markets to enter into a further unsettled period.

Notwithstanding this, in the US and in the UK, economic growth continues – albeit at a variable pace. From the UK perspective, the relative strength of Sterling continues to hold down inflationary pressures while at the same time hampering export growth, but there are some signs that within the Eurozone (the UK’s most important export market) the overall picture is beginning to stabilise and show some sign of improvement.

Against this mixed background, we still consider it reasonable to suggest that US interest rates will begin to rise, although not as early as initially suggested. In the UK, that process looks set to follow but may be delayed by perhaps six months or more.

Our reading of all of this is that developed market fixed interest investments look to hold relatively steady for the moment and while equity markets are currently subdued, it is our view that sound value is still to be found here.