Onwards and sideways

The FTSE 100 continued its recent winning streak closing in once again on 7400. The Bank of England released its latest inflation report on Thursday and although the vote remained 7-1 in favour of keeping rates where they are, the Bank’s biggest hawk historically, Mr McCafferty, was obviously not inclined to put his hand up from the back of the class. The tone set by the minutes was considered to suggest that rates may start to rise sooner than markets may be pricing in. Also released on Thursday was the latest inflation report. In the report GDP forecasts, which are not often worth the cigarette packet they are calculated on, were reduced slightly from 2% to 1.9% for 2017. Inflation is expected to creep above forecasts and dip back again in 2019. Mark Carney’s press conference was largely an exercise in keeping out of the Brexit debate at a politically sensitive time.

UK gilt yields, in common with yields on most developed bond markets, have been creeping higher, however today’s inflation report had negligible impact on yields. The Great British Pound, which has threatened to break through 1.3 (as we predicted several weeks ago it would approach that level) against the US dollar retreated slightly back below 1.29.

Equity and bond markets appear to remain in the sense of calm, not even the firing of Mr Comey in the middle of an investigation caused so much of a blip on trader’s screens. One cannot argue that President Trumps first 100 days have failed to deliver on headlines.

Gina Miller, before the next cause celebre of Brexit took her attention, was vocal on the problems a retail investor faces with hidden charges. On this point, we have common ground. Something that many non-market professionals are likely to have heard of is the upcoming introduction of MiFID 11. MiFID stands for Markets in Financial Instruments Directive and the final proposals will be released shortly, for implementation at the start of 2018. The aim of the act is to provide a fairer, safer and more efficient market place -  so far so good. That in theory should be a good thing for the retail investor. The problem may be that the proposals are likely to impact the smaller investment houses to a greater degree, as they will increase the regulatory burden and therefore costs. Which, one way or the other, either through reduced competition or higher fees, one suspects the retail investor will end up paying for. The other concern is that the smaller investor will become less cost efficient and may also be disadvantaged as they will become even more uneconomical. One role that is likely to grow, yes you guessed it, that of the compliance officer!

Posted on May 12, 2017 .