The Supreme Court in London last month declared its ruling on Article 50. The Justices rejected an appeal by ministers against a previous High Court judgment that Britain cannot begin the process of leaving the European Union without Parliament approval. The MPs voted on 1st February, and in the end a large majority (498 versus 114) voted to allow the government to begin negotiations. Meanwhile Theresa May has announced that the government would issue a White Paper detailing the plans for Brexit. She still wishes to begin the negotiations by the end of March.
In the US, Donald Trump has been sworn in as the 45th President of the United States. During his speech he vowed to put an end to ‘American carnage’, by stripping power away from Washington and giving it ‘back to the people’. A few days into his presidency Trump issued an executive order for a 2,000 mile wall to be constructed along the US border with Mexico. Funding would first have to be approved by the US Congress, but Trump was adamant that Mexico would reimburse the entire cost, which is likely to be in the billions.
Despite the controversy surrounding Trump and his policies, his opening week as President did little to subdue financial markets. The S&P 500 index reached an all-time closing high of 2,298.4 towards the end of the month, while one of the oldest market indices of all time, the Dow Jones Industrial Average, broke above 20,000 for the first time ever.
Inflation in the UK continues to surge upwards. According to figures from the Office for National Statistics, the Consumer Prices Index (CPI) rose to a two-and-a-half year high of 1.6% in December, up from 1.2% in the previous month and 0.2% in December 2015. However it is still below the Bank of England’s target of 2%. The recent surge in the CPI is largely due to factories having to pay more for raw materials following the fall in the pound, and subsequently passing the price increases onto consumers.
January was a mixed month for developed equity markets. In the UK, the FTSE 100 index fell -0.57% while the FTSE 250 (ex IT) index and the FTSE Small Cap (ex IT) index picked up +0.37% and +1.22% respectively. In the US, the S&P 500 index gained +1.90% while in Europe the Eurostoxx 50 index lost -1.69%. Japanese equities, measured by the Topix index, ended the month fairly flat at +0.22%.
Emerging market returns were positive. The MSCI EM (Emerging Markets) index saw an increase of +3.98%. Chinese equities, represented by the MSCI China index, surged +6.85% and Latin American equities, measured by the MSCI EM Latin America GR index, gathered +5.28%. The IISL Nifty index, which measures Indian equity returns, jumped +4.59%.
Global bond markets performed less well over the month. UK government bonds, measured by the FTSE Gilts All Stocks index, fell -1.74%, and long dated (over 15 years to maturity) gilts lapsed -3.14%. In the corporate market, European corporate bonds, measured by the Markit iBoxx Euro Corporates index, were down -0.62% and sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, lost
-0.95%. High yield returns were better, as the Bank of America Merrill Lynch Euro High Yield index and the Bank of America Merrill Lynch Sterling High Yield index returned +0.74% and +1.03% respectively. Emerging Market sovereign debt, measured by the JP Morgan EMBI Global index, increased +1.44%.
Commodities had mixed fortunes during the month. The S&P GSCI index, which consists of a basket of commodities including oil, metals and agricultural items, fell -1.41%. The price of a crude oil contract dipped
-3.38%. Agricultural returns were positive, as corn and wheat gained +2.20% and +3.13% respectively. The precious metals also saw positive returns, as the S&P GSCI Gold and Silver indices lifted +4.97% and +9.77% respectively.
In the foreign exchange markets, the US dollar experienced some volatility ahead of Trump’s inauguration and ended the month down -1.94% against the pound. It was a better month for the euro and the yen, as they appreciated +0.70% and +1.81% respectively against the pound.