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DECEMBER 2015
QUILTER CHEVIOT
Quilter Cheviot provides bespoke investment management for private clients, trusts,
charities and pension funds. To provide a truly personal service, we assign to each
client an investment manager whose role is to design and implement an investment
strategy tailored to the needs of the client. A local presence and easy accessibility to
investment managers is a key element to the personal attention we give our clients.
Quilter Cheviot has a network of regional offices located in major cities in the UK,
Ireland and Jersey.
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MARKET COMMENTARY
Chinas structural transition to a
more sustainable growth rate while
GDP growth in many emerging
economies will be held back by
the level of debt built up since
the financial crisis. Trade and
manufacturing are therefore unlikely
to provide a significant boost to
the global economy in 2016.
Fortunately, consumers are in
robust health with disposable
household incomes benefitting
from minimal inflation, rising
employment and low interest
rates. In the US, fiscal policy and
oil market over-supply are also
supporting economic activity. The
drag from US fiscal tightening
- equivalent to 1.25% of GDP per
annum over the last five years - is
ending just in time to boost real
state and local spending by 3%
during the presidential election
year. Energy and metal price
declines are estimated to have
transferred the equivalent of 1%
of global GDP from producers to
consumers and, while the initial
reaction of US consumers was
muted, history suggests the process
still has some way to run. As US
housing starts have lagged the
population increase, construction
is likely to be a larger contributor
to GDP in 2016. Offsetting these
positives are higher interest rates
and the potential drag from
excessive dollar appreciation. After
a brief pause in the summer, payroll
employment has continued to grow
with the unemployment rate now
down to 5%. While visible slack in
the labour force - the gap between
the governments broad and
narrower unemployment measures
- has narrowed significantly in
recent months, the invisible slack
- such as hiring relative to job
openings - shows wage pressures
are limited and confined to lowpaying industries. Although the
Federal Reserve has signalled liftoff for interest rates in December,
their trajectory remains uncertain
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MARKET COMMENTARY
and forced short-term market rates
deeper into negative territory - a
move unprecedented for a global
reserve currency. Peripheral countries
should grow faster than average if
they can avoid being derailed by
political discord, weak governments
and reform fatigue. Irelands growth
rate will slow to 5.5% but will still
be the highest in the developed
world. The uncontrolled increase
in inward migration presents a
structural challenge but may
focus attention on the economic
opportunity for a region with a
deteriorating demographic profile.
The pace of UK economic activity
is slowing but strong consumer
spending and housebuilding should
more than offset lower net trade and
tougher austerity to produce GDP
growth of 2.5% in 2016. Employment
and real disposable incomes are
rising but low inflation expectations,
increasing productivity, inward
migration and tighter benefit eligibility
mean that unit labour costs are
increasing by just 1% per annum.
Given the strength of sterling and
sub-par global growth, disinflationary
pressures are high and the first
interest rate rise has been pushed out
into 2017. Brexit is an obvious risk for
2016 and, although there is a long way
to go before the referendum result, we
are surprised how sanguine currency
and financial markets appear to be.
Investors should remember that the value of investments, and the income from them can go down as well as up, and
that past performance is no guarantee of future returns. You may not recover what you invest. This document is not
intended to constitute financial advice; investments referred to may not be suitable for all recipients.
CONTACT US:
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w: quiltercheviot.com
Quilter Cheviot Limited is registered in England with number 01923571, registered office at One Kingsway, London, WC2B 6AN. Quilter Cheviot Limited has
established a branch in Dublin, Ireland with number 904906, is a member of the London Stock Exchange, is authorised and regulated by the UK Financial Conduct
Authority, is regulated by the Central Bank of Ireland for conduct of business rules, under the Financial Services (Jersey) Law 1998 by the Jersey Financial Services
Commission for the conduct of investment business in Jersey and by the Guernsey Financial Services Commission under the Protection of Investors (Bailiwick
of Guernsey) Law, 1987 to carry on investment business in the Bailiwick of Guernsey. Accordingly, in some respects the regulatory system that applies will be
different from that of the United Kingdom.
This commentary has been prepared for information purposes only and is not a solicitation, or an offer, to buy or sell any security. It does not purport to be a
complete description of our investment policy, markets, or any securities referred to in the material. Please note that this commentary may not be reproduced,
distributed, disseminated, broadcasted, sold, published or circulated without prior consent from Quilter Cheviot Limited.
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