Swiss and eurozone central bankers have markets on tenterhooks, leaving global investors to weigh up the implications of monetary policies.
Strange things are supposed to happen at sea, but last week it was landlocked Switzerland that surprised global markets. The Alpine enclave’s discreet central bank unexpectedly ditched its currency ceiling against the euro, which sent the Swiss franc soaring. The European Central Bank’s (ECB) is expected this week to pump more money into the bloc’s ailing economy through a version of quantitative easing (QE). This has placed pressure on the euro.
Investors often start the year with a flurry of activity that creates a ‘January effect’, and the first weeks of 2015 have reflected the divergent paths of the advanced economies. With alarm bells ringing in Switzerland and investors readying themselves for eurozone money printing, January is looking sharply bifurcated. While eurozone and Japanese stocks look set to benefit from more central bank stimulus; UK and US stocks remained broadly flat, despite the volatility in recent weeks. Meanwhile, as global commodity prices tumble, the World Bank has reassessed its global growth estimate for 2015 to 3% from 3.4%; and has raised fears for the eurozone as Greece toys with an exit from the single currency, the German economy stalls and deflation grips the bloc.
Despite the upbeat noises for the world’s largest economy, America is yet to break free of its lingering doubt over the pace of the recovery. Last week retail figures for December were down 0.9% on the previous month, suggesting America’s consumer spirits were dampened around the festive season. One area of concern, which is shared with the UK, is that the recovery is yet to produce the wage increases needed to boost consumer confidence and spending. However, this has to be placed in the context of the 60% fall in the price of oil over the last year. Lower petrol prices could compensate for the lack of wage growth – and boost profits for oil-reliant corporations too.
British deflating balloon
Meanwhile, Britain’s annual inflation is down to 0.5% and further from the Bank of England’s target of 2%. Chancellor George Osborne compared Britain’s low inflation and the benefit this brings to households with deflationary problems in the eurozone. Prime Minister David Cameron, after his summit with President Barack Obama, also urged companies to pass on the windfall from low oil prices in improved wages. Meanwhile, Mark Carney, the governor of the Bank, said inflation will likely drift lower in coming months. Overall, as Schroders argues, low inflation will boost spending and UK growth. However, the EY ITEM Club has warned that a fall into deflation could delay a rate rise until 2016 (although it expects UK growth to accelerate to 2.9% in 2015).
As the UK counts down to the general election, the major landmark in April for savers and investors will be the new pension rules. Warnings continue to emerge that pensioners could run out of cash due to the rule changes, with the charity Age UK adding its concerns last week. However, YouGov reports that the majority of pre-retirement savers would prefer to use their pension to secure a guaranteed income. A survey of people aged between 55 and 70 has found that 70% wanted to use their pension pot to deliver a guaranteed income, and just 7% planned to spend their savings on luxuries. The other spring landmark is, of course, the tax year-end, and – whatever the general election holds in store – now is the time to explore tax planning and investment opportunities and take action before 5 April.
Words by Tom Williams. Tom has vast experience in trading the Forex markets and is a qualified financial advisor. With expertise in wealth management, retirement planning and inheritance tax planning, he regularly advises on how to maximise personal wealth.
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