4 December 2018
“Real wage growth will lead to better consumer spending, improved affordability in the housing market and, of course, better Government tax receipts. I expect to see more falls in food price inflation which, when combined with lower oil prices (witness, the recent 30% fall in crude prices), will mean that inflation will fall further and faster than consensus has forecast. All very encouraging for the remainder of this year and as we look into 2019.”
— Neil Woodford
After October’s steep declines, November marked a month of consolidation for most regional equity markets. Emerging markets rallied following a prolonged period of pressure, and similarly, a late-month recovery for technology stocks helped the US indices to finish in positive territory. In Europe, most major markets were marginally lower, and, in the UK, politics remained more important than economics as a key driver of sentiment.
The Bigger picture
The global macroeconomic picture continues to evolve pretty much along the lines we have been expecting. We have seen more disappointing economic data from the eurozone and, in a further challenge to the consensus view, an abrupt fall in the oil price, which is now down more than 30% in less than two months.
Elsewhere, there was more worrying data from the Chinese housing market and the latest survey data suggests that China’s economy remains under pressure.
Closer to home, the Brexit deal has been agreed with the European Union and Theresa May now has the next couple of weeks to go to the country and sell her deal, and for the business community to get behind it too.
The UK economy continues to perform well, with better-than-expected wage growth and lower-than-forecast inflation data. This means even stronger real wage growth, which will lead to better consumer spending, improved affordability in the housing market and, of course, better Government tax receipts. This is all very encouraging for the remainder of this year and as we look into 2019.
Key Company Events
In November, as well as the Autolus news mentioned above, we saw positive news from a number of other holdings in the Woodford Patient Capital Trust portfolio.
Four significant milestones
Immunocore announced a $100m collaboration with Genentech, a member of the Roche Group.
Mission Therapeutics links with global pharmaceutical company AbbVie to develop Alzheimer’s, Parkinson’s therapies.
Spin Memory raises $52m and enters into commercial agreement with Arm, the world’s leading semiconductor intellectual property company.
Ultrahaptics raises £35m to cement its place as a global leader in virtual technology.
As we head towards 2019, we are confident that the individual constituent parts of the UK economy will continue to deal with the prospect of Brexit in the same way that they have been doing since the referendum in June 2016.
Our UK thesis continues to be based around more people in work, with faster real wage growth, more spending from Government, a pick-up in investment and benign credit conditions. Banks will continue to grow lending and, in particular, the growth in the housing market will continue with more housing transactions, more mortgage approvals (for house purchase rather than buy-to-let) and gently rising prices. Monetary policy should remain supportive, with low interest rates, because inflation will continue to fall.
Outside of the UK, China’s growth challenges will become increasingly obvious and the economy’s growth rate will fall further, emerging market economies will continue to battle with the issues that have troubled them in the second half of 2018, and Europe’s growth slowdown will continue. The new dynamic in the global outlook will, we believe, be a lower contribution to global growth from the US. Here, the effects of Trump’s fiscal stimulus will subside and the monetary policy response (higher interest rates and quantitative tightening) will have an increasingly deleterious impact on growth.
As ever, our focus remains on the long-term and, from that perspective, we continue to believe that the Woodford investment strategy is very appropriate for this environment.