Mazars Quarterly Investment Outlook: Whatever Happened to the Global Synchronised Cycle?
In an early 2010 report Morgan Stanley warned that the biggest consequence of the 2008 global financial crisis could be isolationism and the reversal of a 50 year old trend which saw increasingly open borders, open trade and freedom of movement. As each country would seek to leverage its position to avoid the worst consequences of the crisis, the strong would get stronger and the weak would get weaker. At the time, few key central bankers in the US, Japan and Europe saw the risk. Taking a page out of game theory, they decided that it was in their interest to cooperate and restore growth, rather than compete for a quickly dwindling output. However, as power eventually passed back from central banks to elected officials, and as the electorate was more interested in localised rather than global growth, the desire for convergence soon turned to divergence. As cooperation diminishes, the world finds itself struggling with the rebalancing of the relationship between its two largest single economies, the US and China.
The main theme for investors since the beginning of the year has been divergence. As global growth for developed markets remains well below its pre-crisis norms, nations are turning inwards to find solutions which will allow them a bigger share of the global economy. A formerly cooperative process leading to a rapidly globalised economy is now increasingly turning into a zero-sum antagonistic game, with clear winners and losers. This development is underpinned by persistent trends:
But what do trade wars and growing differentials in policy stimulus mean for investors? Increasingly more divergence. Year-to-date, global stocks have risen 6.2%. However, take out the US, and growth for the MSCI World is 1.38%. As US stocks rallied, European growth petered out, the Chinese stock market plunged into a bear market, while Turkey saw its currency depreciate by 40% since the beginning of the year. Valuations also diverge. The US is trading significantly above its historic premium versus the MSCI World (6.25%), while the UK is trading below (-5.27%). Europe is also hovering above (4.77%) even as Emerging Markets and Japan trade below their average valuations over the past few years (-11.3% and -27% respectively). The Dollar rose as much as 1.5% on a trade weighted basis, while the Euro was flat and the GBP has weakened 1% as Brexit worries compound ahead of a critical deadline in March 2019.
As asset allocators we welcome divergence, since it creates opportunities, especially for active managers. However, we are increasingly concerned that those strengthening headwinds could eventually harm the economic cycle, already in its tenth year. Thus, this quarter, we set out to examine the sources and repercussions of the growing divergence between global economies. Is the divergence a normal, cyclical phenomenon, or is there more to it than meets the eye?
Until the 1950s, allocating wealth was primarily a business for stock brokers. Clients would step into a well decorated Wall Street office and ask to be informed of the best stock picks, which would subsequently constitute their portfolio. During that time bonds were rarely part of the discussion. At that time, the corporate credit market was still underdeveloped (from a few billion in 1950 to over 3 trillion Dollars today) and, as was the case with sovereign bonds, reserved for pension funds, institutional investors and retirees.
This all changed in 1952, when Harry Markowitz published his paper “Portfolio Selection”. It was the first time someone saw financial assets in a holistic risk/reward way, rather than just a collection of separate stocks. His work earned him the Economics Nobel Prize in 1990. In his Modern Portfolio Theory, Markowitz argued that portfolios should include different assets that on average move in different directions to improve their reward/risk profile. When stocks go up, for example, bonds tend to retreat and vice versa. So why not have both? While this would limit the upside, it would also cap the downside.
That was exactly what the financial industry was looking for; a way to tell its clients that the downside can be limited. At the time the industry was coming out of the Second World War and was still reeling from the painful memories of the Great Depression. Desperate to shed their pre-war image as shady back room dealers and re-entice clients with safer methods of investing, financiers quickly adopted Markowitz’s theories, rebranding themselves as custodians of wealth. Thus, asset allocation, the bedrock of portfolio management, was born.
Portfolio management to this day adheres to that same principle: returns can be maintained and overall volatility reduced if one holds differentiated assets. Asset managers create diversified portfolios which include many different asset and sub asset classes. Yet, that tenet was seriously challenged after the Global Financial Crisis (GFC). In the aftermath of Lehman’s collapse, central banks took the reins of the global economy and, in concert, bought financial assets, infusing the global financial system with over $8 trillion of new wealth. All financial assets rebounded sharply shortly after so-called “Quantitative Easing” (QE) began. With the exception of the 2011-12 Euro Crisis it was very easy to invest across the globe, with most investments gaining, underwritten by central bankers determined to support the risk/reward culture. Global economies also rebounded in a synchronous manner, as new money meant new investments, some of which trickled down to end consumers.
The system was saved. But Modern Portfolio Theory, which suggested holding both equities and bonds to benefit from the low correlations between the assets in times of stress, was tested. If asset classes across geographies gained synchronously, it stood to reason that they would lose synchronously.
Much changed after 2015. As Europe was beginning a QE cycle, the US was nearing the end of its own extra-ordinary monetary stimulus.
Four types of divergence emerged:
Now central banks are seeking to give up the driver’s position, leaving further stimulus dependent on fiscal policy, which is in the hands of elected officials. This, however, may not have been enough. Central bankers control monetary policy and oversee the banking system, but have no means to decide on the dissemination of the capital they create. In other words, quantitative easing found a way to create over $8 trillion of non-inflationary new wealth, but its instigators could not control where the money went. Banks initially used the money to cover the gaping holes in their own balance sheets. But the money kept coming in well after the financial system was repaired and re-regulated. So it was financial markets which benefited, with asset prices rising rapidly. Yet consumers, most of whom own real rather than financial assets, saw little benefits from the stock market rally.
The global economy subsequently fell victim to an economic notion known as the paradox of thrift: consumers, weary of the crisis, were not willing to increase their spending even when their finances allowed them to. Companies, aware of the fact that the global economy was artificially propped up by the central banks and fearing diminished consumer demand going forward, cut back on their spending, preferring high dividends and share buybacks to expansion of their operations. Some opted for spending money to acquire rival companies, but M&A is all about cost-reducing synergies, not about expansion.
Thus, the most disconcerting divergence, which still undermines the economic cycle, was born. Political divergence. As owners of financial assets, usually the wealthier percent of the population, was getting richer on virtually free central bank money, average families on Main Street saw their own lives stagnating. To the electorate, the system may have saved itself, but it was no longer necessarily working for them.
Enter an era of political divergence, the likes of which have not been observed since the 1930s. Two notable rifts have been rocking the political world in the past few years: The rift between the more and the less affluent and the rift between importing and exporting countries. The former exacerbates the latter.
The PEW research centre discovered that in the US, the divide between Democrats and Republicans has significantly grown in the past 20 years. In Europe, the situation is similar. Electoral cycles have seen the simultaneous rise of both the hard right and the hard left, confirming that the wind is only blowing against centrist policies.
Markets have usually been sanguine about politics. However, this time around, the politics of disenchantment matter. The post-crisis malaise has exacerbated political tensions across the world, with electorates now increasingly choosing representatives who promise prosperity to their voters, rather than pledging themselves towards a stable global economy. Brexit and the election of Donald Trump cemented that trend in the Western World, as the UK and the US both decided to seek more domestic-based economic growth policies. As politics diverged, so did the return of risk assets and economic growth. In Europe, Italy’s politics of dissent put additional pressure on the very fragile European experiment.
US Dollar assets benefited massively from Mr. Trump’s repatriation incentives, including a massive tax stimulus for US firms, with investors liquidating riskier positions around the globe, such as in Emerging Markets, to invest in US Dollar equities.
Divergence in politics is reinforced by divergence in monetary policies, with central bankers now taking more cues from political leaders, rather than other central bankers. While the US is hiking rates, the EU and Japan has maintained its ultra-accommodative policy and UK rates continue to remain near all-time lows.
Global trade conditions have deteriorated, mostly due to the stronger dollar. A more expensive global reserve currency is a disincentive for trading goods and services. Since last year, the growth of world export volumes has fallen an estimated 6%, while Korean exports (a traditional bellwether for global trade) have slowed by 8%. Despite the tightening in the US, financing conditions in most developed economies remain relatively loose. However, key Emerging Markets, such as China, are reporting significant tightening in credit.
Different countries now pursue growth in different ways. The US stimulated its economy, possibly at the expense of future growth. Mr. Trump’s Republican government cut taxes and instituted incentives for currency repatriation. It is also pursuing, and achieving, an overhaul of tariffs with its neighbours, while taking a more antagonistic approach against the EU and China. As a result, US growth picked up in the last quarter, with the economy gaining 2.9% year on year, up from 2.6% in the previous quarter, while corporate earnings rose over 20% for the second straight quarter. Business and consumer confidence is soaring, confirming the Fed’s hawkish bias, as inflation is tightening. The Fed’s Chair was even quoted saying that he “would see no reason why the cycle should not go on indefinitely”.
Europe on the other hand, still employs Quantitative Easing to ease pressures created by its ever-unbalanced economic ecosystem, while avoiding stimulus as countries are forced to adhere to strict deficit rules. German, French and Spanish exporters may benefit from an occasionally lower Euro, but most peripheral countries, including Italy, continue to struggle to find a viable long-term economic model within the confines of the single currency rules.
Aggregate European growth has slowed from 2.2% to 2%, a trend reflective of most economies within the union. France’s economic momentum is lost, Spain is slowing and Italy continues to wrestle between the need for reform and a new political direction. Meanwhile, inflation is creeping up, however the ECB does not expect to consider interest rate hikes until mid-2019.
The British economy continues to slow down, although an unexpectedly good summer saw an equally unexpected pick up in consumption and construction. However, overall output continues to decelerate to almost half the pre-referendum levels. GDP growth registered a 1.2% rise in Q2, against 2.4% in 2015, while inflation persists at levels above 2.5%, prompting the central bank to have a more hawkish outlook, despite diminished demand.
China continues to carefully stimulate parts of its economy, while simultaneously proceeding with a controlled deflation of its local and private debt. In the past few years, Chinese companies are catering more to the domestic consumer, rather than just being reliant on exports, which also means a more domestic-focused economic policy. Official growth is still strong (c. 6.7%-6.8%) however evidence from PMI indicators suggest more sluggish output.
The economic divergence was concomitant with broad market divergence. During the second half of the year, risk assets decorrelated further, as it became apparent to investors that the factors underlying economic divergence would persist for some time.
A major area of divergence is currencies. As the US has continued to tighten its policy, yields have risen above the critical 3% level, above which the interest of long term investors increased. After almost a decade of yield suppression, the opportunity to invest on the world’s “risk free asset” at a decent yield was too big for investors to pass, which led to outflows from the riskier Emerging Market positions and inflows in US Dollar assets. For the year, USD has gained 3.5% on a trade weighted basis, Yen has gained 2%, EUR is down 2.2%, GBP is flat, while a basket of emerging currencies has lost 12%.
In terms of stock markets, divergence features not only in returns but also in valuations. In Sterling terms, US equities have returned 13% for the year, pulling the MSCI World up with them. However, in same currency terms, UK stocks have returned -1.5%, while European, Japanese and Emerging Market stocks, unaffected by significant local factors such as Brexit, have returned -2.6%, +2.8% and -9% respectively.
Research indicates that the current bout of divergence is actually nothing new. Such market divergence happens often, and if anything, convergence at the beginning of the year was actually near historical highs. However, the significant headwinds to global economic convergence, a consistent post-World War II trend which has now come under threat, sheds more light onto the recent diverging trends.
One of the major, but less acknowledged, drivers behind the rift is the emerging/developed market rebalancing. In the past, Asian companies, primarily China and Japan, produced cheap goods for Developed Market consumers. Asian economies were growing fast, while DM consumers were benefiting from cheaper goods. The relationship began to change in 2014, when Chinese authorities decided the time was ripe for their economy to make the leap from the secondary (manufacturing) to the tertiary (services) sector. This, naturally, shifted the focus to domestic consumers, as proximity is a significant factor in consuming services. The next move came from the US, which set up the TPP, a Trans-Pacific Partnership, which solidified its foothold in the area. We view the subsequent change in policy under Mr. Trump, as simply a different, more antagonistic version of that move.
Despite the disruption, Chinese economic transition is expected to persist, which means that the two biggest single economies in the world will have to find a new way of working together. The process could take from as short as two weeks to as long as decades. In the meantime, the progress towards globalisation, which began after WWII, could see its fair share of disruptions.
The question underpinning diverging trends is this: have we reached the limits of globalisation? Do financial services and technology move at speeds at which modern men and women simply cannot follow? Is the current diverging trend simply the return trip in a process which began with the kick off of the cold war?
So far, we do not have the evidence to call the end of globalisation. The ability to trade goods and services without borders is facilitated by technology. In a predominantly capitalist world, why would anyone seek to forgo technological advances and pay more than they should have to? In contrast to individual interest is of course societal interest, which increasingly takes the form of populist movements, which would put “America First”, or “Italy First” or even “India First” etc. However, the nature of these movements is reactionary. Rather than offering a different vision forward, they often offer the impossible return to a glorified and usually inexistent past. Chances are they would eventually consume themselves, not without consequences, before the cycle begins again. It was probably foolhardy to think of globalisation as an unstoppable and perpetually unopposed movement. History often forgets that transition from the primary sector (agriculture) to the secondary (manufacturing), by the process of the industrial revolution, was not without obstacles. In Britain, followers of Ludd (hence Luddites), used to invade factories and break machines. In France they would throw their wooden shoes, called sabot, in the machine to stop production. From there comes the modern word of “Sabotage”!
As we move towards a world which will see Chinese consumers claiming a bigger piece of global wealth, a world where technology continues to minimise distances at a breakneck pace, it is natural that we will see political reaction. It will take time for people to adjust and, yes, generations could be “lost” in the process of repositioning western economies for that new world.
We believe the future will still be more globalised, albeit with hiccups in the road. However, it may not necessarily be the projected straight line from where we are today. The future could very well be an era where competitive advantage and technology lies to the East, where US and western consumers are not the lynchpin and focus of the global economy and where eventually the disinflationary advantages of globalisation will peter out. Perhaps the PBOC will become as important as the Fed, or the dominance of the US Dollar as the global reserve currency will be challenged.
As asset allocators, we need to prepare for that future. Already the partial opening of the Chinese market has resulted in the MSCI World and the FTSE including more Chinese mainland shares in their benchmark indices. Already news out of China has a –still unsustainable- leading effect on western stock markets. Over the long term, portfolios should adjust to that reality. Asset allocators should also be ready for more political backlash and more volatility in the road to globalisation. Western countries will not just easily hand over their dominance over the globe which has lasted since Marco Polo published his “Book of the Marvels of The World” in 1300.
What’s more, we would expect at some point to see some new theories regarding portfolio management. Markowitz’s theory has served us well for the better part of the century, but let us not forget it was a new beginning for a financial system that had failed. After 2008 much has changed, including the nature of long term correlations. So it seems there may be need for investors to seek out new theories and new practices in portfolio management.
As for the current market divergence? Research suggests that it is a garden variety bout of divergence. However, because it coincides with a general divergence theme, it has been getting more attention in financial literature than it probably would otherwise. Experience teaches us that it is more typical in the mature part of the cycle which we now find ourselves in, so, given the prevailing trends, we would expect more such bouts of divergence relative to the recent past. Experience also tells us divergence is positive. Convergence, forged and forced by central banks for a period of six years up to 2015, challenged portfolio diversification principles and favoured passive managers. An increase in overall divergence means more benefits from diversification and more opportunities for truly active managers. So far, in an asset allocation, market and even political and historical context, we do not see the current activity as something well out of the ordinary. In fact, what we observe is that as politics take over from central banks, the competitive allocation of assets returns to its previous norms.
Therefore, to answer the original question: What happened to the Synchronised Cycle? It normalised.
We remain cautious on the UK due to uncertainty regarding monetary and fiscal policy in the wake of Brexit. Aside from an underweight UK position we have no strong geographic preferences. In January 2018 the investment committee remained overall bullish on risk assets, recognising that equities continue to offer more value comparative to bonds. It also acknowledged that the risk of a black swan -an unforeseen cycle-ending event- is rising. We thus decided to tactically take some risk off the table, reducing our equity overweight to “Neutral” and place the proceeds in cash. In April, we redeployed some of this cash into Gold, to enhance investor returns in the face of increasing volatility. During our June investment committee we maintained our stance, recognising that nothing has changed in our investment thesis. During our September investment committee, we did not make material changes in our asset allocation. However, we reduced our cash buffer by 1%, allocating the proceeds to short-term bond funds. Additionally, we significantly reduced our weighting in absolute return funds, as we feel that their investment thesis could be significantly challenged in a higher standard deviation environment.
At the beginning of the year, we also reduced the number of funds in the portfolio to increase the focus on those fund managers that make a difference. The underweight in bonds was maintained, as we feel that they continue to be expensive versus equities. We still favour large-caps but are more concerned about high dividend stocks as the global economy accelerates. In the bond space we maintain an exposure in longer dated Gilts and shorter duration corporate bonds, adopting a more ‘barbell’ approach for the fixed income part of our portfolios.
Despite higher interest rates and persistent (though falling) inflation, global equity markets continued to err on the side of optimism as consumer spending remained strong and company earnings were better than expected.
Alexander the Great was the first of the world’s great conquerors. Originally intent to exact revenge from Persia (modern-day Iran), he turned his adventure into global conquest and exploration. He marched his Greeks from Macedonia to modern-day Turkey, Georgia, Armenia, Syria, Lebanon, Israel, Jordan, Egypt, then back up to Iraq, finally conquering modern-day Iran.
The debt ceiling drama-that-wasn’t is squarely behind us. An eleventh-hour deal was signed, averting the wanton default of the biggest economy in the world, and the global risk-free asset, the US Dollar, marking the 79th straight time that the debt ceiling was successfully raised.
Our key theme since the beginning of the year is that the world is a volatile and unpredictable place. To be fair, this could have been our theme every year since 2006 and we would have still hit the mark. But this is not garden-variety volatility.
The global economy remains unbalanced as the pandemic disrupts global trade, supply chains and international relations. As a result, individual economies diverge and data is unpredictable and volatile.
If investors collectively believe in the second coming of QE, then at some point, we should expect a severe market retrenchment. But what if markets are more sanguine than that? What will be the major catalyst, to unleash market forces for risk assets to escape their narrow bands?
The last quarter of the year saw some relief for investors who had been hit from all sides throughout 2022 as markets rallied on the belief that the economy was perhaps showing enough signs of stress to persuade central banks to consider slowing, and then stopping interest rate rises.
Outlooks, our own included, paint quite a grim economic picture at the start of the year. Inflation is really an independent variable and, even if the rate of price rises moderates, prices themselves are set to remain high. Meanwhile, central banks are determined to put the brakes on economic growth in a bid to prevent inflation from becoming entrenched.
It is an uncomfortable message that we end the year with, yet a necessary one. Stability should never be seen as the ‘normal’ state of things. And that’s well and truly better for truly long-term investors.
Even if we recognise that the world has profoundly changed, we try to analyse it with the eyes of the past. Instead of trying to forecast with the past’s eyes, we need to acknowledge how the present has changed, and develop the right tools to analyse the future properly.
Outlooks. The time-honoured financial industry tradition of toiling to write 30-40 pages of annual forecasts promptly binned by April- at the very latest. Yet, the industry gods demand it and deliver we must.
It’s bad news for our ‘pivoting’ camp, a word that in the past few months has been grossly and infuriatingly overused. Not only is the Fed speeding up the rate of Quantitative Tightening, but it is also showing no signs that it is ready to change its aggressive tightening policy.
The third quarter of the year saw markets start to second guess central banks’ resolve to raise interest rates in order to combat inflation. Expectations of a change in monetary policy gathered momentum and caused a rally in global equities of over +11% in a five week period. Alas this proved to be a short- lived bear market rally as central banks, led by the US Federal Reserve, signalled their determination to stay the course with rate rises.
Having been absent for decades, the return of inflation is forcing market analysts to learn how to respond to rising interest rates and squeezes on the real purchasing power of consumers’ disposable income. As interest rates rise, the notion of ‘There Is No Alternative’ is diluted, and the prospects for a slowing economy increase, leaving valuations on risk assets vulnerable despite the recent falls.
On the 23rd March 2020, the United Kingdom entered its first official lockdown in an attempt to limit the spread of the COVID-19 virus. The initial uncertainty was catastrophic for the economy and many UK businesses were forced to cease trading as revenues plummeted to zero almost overnight.
The new year brought about a significant change of market sentiment as concerns about inflation and fundamental changes to monetary policy caused a reassessment of asset prices. The war in Ukraine has added to inflationary pressures particularly in commodity markets, as further disruption is expected in supply chains as China announces further lockdowns.
2012 was a year for the financial history books. Europe’s greatest experiment, the common currency area, was moribund after only twelve years of life. The post-Lehman economic convulsions had driven Greece, its weakest economy, bankrupt, and had brought Italy, its most indebted economy, to its knees. Mario Draghi, then Chair of the ECB, and the […]
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With inflation pressures coming mostly from the supply side, there is little the Fed can do to curb it. Interest rates are tools best used to cool down the economy during a mature, credit-driven economic boom. They are not designed for a recovering economy and much less for one still under the threat of a pandemic.
Investing during the past twelve years has been underpinned by a basic principle: market participants have been encouraged to take risks, mainly to offset the trust shock that came with the 2008 financial crisis (GFC). Each time equity prices have fallen significantly, the Federal Reserve, the world’s de facto central bank, would suggest an increase in money printing, or actually go ahead with it if volatility persisted. Bond prices, meanwhile, kept going up, as central banks and pension funds were all too happy to relieve private investors of their bond holdings even at negative yields. Market risk was all but underwritten.
Rising concerns for the prospects of inflation dominated the first quarter of 2021 and caused bond market yields to rise in both the US and the UK. As a result, US treasuries lost over -5% of their value (in Sterling terms) during the period, whilst the loss on gilts was even greater at just shy […]
Inflation expectations rising scared lethargic bond markets and became the most contentious subject of debate in the first three months of the year. Read our outlook to find our position on inflation and the impact on risk assets
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Had you somehow been fortunate enough to have slept through 2020, you would have awoken to find that global equities had risen by nearly 16% during the year and could be forgiven for thinking that the world economy was in rude health. The reality is, as we are all too aware, altogether different with buoyant markets owing their gains mostly to the monetary and fiscal measures put in place to combat the effects of Covid-19, and partly to an optimism that that this year will be far better for businesses than last. A continuation of loose monetary policy also helped provide positive returns for bonds. Gold benefitted from its safe-haven status and a fear of rising inflation to post a 20% return for the year. Commercial property and Oil suffered steep losses as a direct result of lockdown measures.
Quarterly Investment Outlook Q1 2021
The election is almost, but not, over and there are significant lessons for investors.
For the first time since March, the Coronavirus narrative is truly gripping markets.
The persistent dichotomy between stock market performance and economic performance has been a particularly hard puzzle for investors. While it is very clear that the previous 12-year economic cycle has undoubtedly come at an end, the financial cycle, thanks to central banks, has survived a five standard-deviation event (1 in 3.5 million probability), and continues unabated. With the global economy in turmoil, can stock and bonds be trusted to create or even maintain wealth?
Global stock markets built on the astonishing rebound from the Spring to post further, albeit more modest, gains during the third quarter of the year. Global stocks rose by nearly 5% in Sterling terms. That said, again the rises were far from uniform geographically, with US and Japanese equities posting strong returns whilst Europe struggled to a marginal positive return and UK equities lost further ground. Aside from Equities, Gold started the quarter strongly, but then sold off in early August as safe haven assets including the US Dollar retracted in less volatile markets.
A quarterly report is not normally a difficult document to put together. Usually it consists of an account of the trending state of affairs, the more possible outcomes and risks to those outcomes. In the past few years, these reports were actually made easier. The US Federal Reserve was underwriting risk at such an unprecedented scale, nearly unwavering for more than a decade, in a manner which suppressed all major hazards to the economy and financial markets. Ever since 2010 the question, repeatedly, had been: “With opportunity costs driven down so much for so long, whatever can bring markets down?”
Global stock markets staged a remarkable comeback in the second quarter with the MSCI World Index up nearly 20% in Sterling terms. Whilst not recovering all of the losses from the high point in March prior to widespread lockdowns, global equities are nonetheless at higher levels than at the start of the year. Given the absence of any meaningful advances in the treatment of or vaccination for COVID-19 and that the corporate world is temporarily being held together by a variety of hastily created measures of government support, this optimism could be regarded as being somewhat misplaced.
I struggle with the idea how news that nothing has changed in my chances of survival from a killer disease that was enough to lock the whole world down, is enough to send the world’s biggest companies trading at eye-watering 22.6x earnings (the average is around 15-16). It seems to me more credible that the market is running on excessive amounts of QE
If capitalism is about efficiently allocating resources, credit is the delivery mechanism.
At our Investment Committee meeting in the first week of January we discussed amongst other things the heralded resolution of the trade war between the US and China, the fact that the US Federal Reserve was printing more money, and the renewed optimism that came from a stable government here in the UK. Cautious bullishness on risk assets was the tone of the meeting. Looking back at our discussion documents from that meeting, our ‘Wall of worry’ chart which details the things which we consider to be possibly obstructive to stock market gains, did not even mention coronavirus. In other words, we have experienced a true ‘Black Swan’ event. Global stock markets fell by 20% over the first quarter (around 15% for a Sterling based investor) having lost as much as 32% by mid-March. Gold performed its role as a safe haven rising 12% in Sterling terms, whilst Gilts rose by over 6%.
At our Investment Committee meeting in the first week of January we discussed amongst other things the heralded resolution of the trade war between the US and China, the fact that the US Federal Reserve was printing more money, and the renewed optimism that came from a stable government here in the UK. Cautious bullishness on risk assets was the tone of the meeting. Looking back at our discussion documents from that meeting, our ‘Wall of worry’ chart which details the things which we consider to be possibly obstructive to stock market gains, did not even mention Coronavirus. In other words, we have experienced a true ‘Black Swan’ event. Global stock markets fell by 20% over the first quarter (around 15% for a Sterling based investor) having lost as much as 32% by mid-March. Gold performed its role as a safe haven rising 12% in Sterling terms, whilst Gilts rose by over 6%.
what goals cannot be achieved within the former, might be achieved by investing in stocks and bonds, whose growth is concomitant with the survival of capitalism.
We can comfortably use a phrase that, under other circumstances, would surely risk bringing upon us financial anathema: “This time is different”.
Following a flat third quarter, global equities rallied to the end of the year with the MSCI World index up over 7% in local currency terms. Returns for unhedged Sterling based investors were broadly flat as the Pound strengthened following the Conservative’s decisive general election victory. The late final rally was primarily driven by renewed optimism for a ‘phase one’ trade deal between the US and China, and left global equities up 25% for the year. It is of course important to note that, by contrast, markets ended 2018 in very pessimistic mood as the Fed continued to raise interest rates, and therefore a global equity return figure of around 8% from September 2018 is a more useful measure of equity returns.
This is a multi-level chess game, touching politics, intelligence and trade, and a move in each field directly affects the other two.
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After a decade of unprecedented monetary stimulus, we have failed to see global growth rates anywhere near their pre-crisis levels. At the same time, however, we have not seen a recession. The world seems to be ‘chugging along’ as output is pressured on all sides. So is it the Fed that killed economic cycles? Read our […]
According to data from the Financial Times and Bloomberg, investors have withdrawn more than £20bn from UK equity funds since the Brexit referendum. The number dwarves the £4bn estimated net inflows from ETFs during the same period. Outflows from funds and inflows from ETFs suggest that the “slow money” is moving away from UK equities, […]
The chart below shows the range of returns across top nine countries in the MSCI Emerging Markets index by market capitalisation. Combined they make up 88.6% of the indexas of the end of March. The vast majority of emerging market equity funds use this as their benchmark. The largest constituent in the EM index is […]
In the past few decades, one of the policy decisions that were key for investors was central bank independence. In the past, central banks constituted the arm of the Treasury. Run by top notch economists, their ability to review economic conditions independently has given them the power to reduce economic volatility by making sure that […]
Football clubs fall into the ‘Consumer Discretionary’ category of businesses. I’m not entirely sure I would want to tell a Cardiff City fan that their support is discretionary. Regardless, football clubs are a fairly niche investment, with business models significantly different from a regular business. After all they have two measures of success which don’t […]
Do you have a significant amount of financial assets (bonds, equities) or a significant amount of financial liabilities (loans and mortgages outstanding)? In all likelihood you have a combination of both, which makes the following simple statement moot: people with savings dislike inflation, while those owing money tend to benefit from it. Essentially the real […]
Is this a bubble or a source of returns for diversified investors? What is the “Uber bet”? We live in a low interest rate super-liquid world, with a lot of money chasing too few opportunities. Overall equity issuance has stagnated over the last few years as CEO’s use buybacks to please existing shareholders, removing equities […]
It feels that Donald Trump’s “trade wars” with China have come to dominate financial headlines as they were considered the main culprit for last week’s stock market correction. However, a closer look indicates that the whole issue is, at this point, essentially noise, both in terms of market indices and the economy. First of all, […]
Game of Thrones is finally ending, with some great lessons about human excesses. After almost 75 hours of watching the world’s most successful show, plus another 20 reading the books, I now find myself not too keen on watching the final episode. I feel that there’s no walking back on the damage done from showrunners […]
Understanding Q1 earnings, the framing bias and network effects. Wall Street analysts, paired with the management of big listed firms, often adopt an “under-promise and over-delivery” strategy when it comes to quarterly earnings releases. If earnings forecasts where truly well informed, one would expect on average forecasts to line up with posted results and there […]
Read our full Market Update Week 17 Market Update Last week saw diverging performance in global markets as US equities delivered +1.6% in Sterling terms, however Emerging Market, UK and European equities returned -0.8%, -0.3% and +0.1% respectively. Robust earnings from tech giants and a stronger than expected Q1 annualised growth figure of 3.2% meant […]
As the world slows down, it looks to China as both a cause and a solution. Will the world’s second largest economy come through? Read our MFP Quarterly Investment Outlook Q2
Read our full MWM Newsletter Spring-2019 Global stock markets regained their poise in the first three months of the year returning just under 10% in Sterling terms, and nearly recouping the losses from the final quarter of 2018. These gains were delivered despite continued concerns about economic growth which brought about a fall in sovereign […]
Read our full Market Update Week 15 Market Update Global equity markets were mixed last week following a period of strong returns. In Sterling terms global equities were down -0.1%, although in local terms were up +0.5%. In Sterling terms European equities were the only positive region, up +0.2%. US and UK equities were both […]
The key question in 2019 is not Donald Trump or the trade wars between the US and China. The real Gordian knot is China itself. The world’s second largest economy is going through a painful transition, weaning off its dependence on manufacturing and exports and focusing on improving the standard of living for its citizens, […]
Over the past few months, ‘trade-wars’ have moved from obscure historic reference into everyday jargon, casually dropped by consumers on sentiment surveys. The US, suffering from chronic trade deficits and increasing imbalances in its co-dependent relationship with China, has set its sights on trying to disrupt this process, a policy that has had an impact […]
A populist Eurosceptic government, paired with a budget deficit target below 2% and membership of a monetary union is putting a lot of pressure on the Italian economy. The inflated currency strength due to strong countries like Germany sharing the Euro and the inability to use independent monetary policy has cornered Italy into a tough […]
It sounds like a story from the heady days leading up to the 2008 Global Financial Crisis, and something that will end in disaster. Rating agencies assigning the highest possible rating to an auto maker’s debt which is ‘guaranteed’ on clients paying for leases of its cars (which is essentially debt), with repayment on the […]
Read our full Market Update Week 6 Market Update It was a mixed week for equities, with US stocks ending the week up +1.3%, despite President Trump ruling out a meeting with President Xi before March 1 to strike a trade deal and put trade concerns to rest. It was also a positive week for UK […]
Read our full Market Update Week 5 Market Update Last week was a great week for markets with both real and financial assets posting positive returns. Equities were up in Sterling terms with UK stocks, the best performers of the week up +3.1%. Global stocks returned +2.1% and US stocks returned +2.3%; the S&P 500 is […]
The Economist magazine has characterised Brexit “The mother of all messes”. To exit a trade agreement so comprehensive that over the past half century has come to encompass virtually all aspects of the British economy is, by and large, unprecedented. To do so in less than three years, in the midst of political turmoil, is […]
Read our full Mazars Quarterly Investment Outlook- Q1 2019 Outlook 2019 Sometimes it appears that the world is getting louder. The Norwegian Sociologist, John Galtung said that if a newspaper came out once every 50 years, it would not report half a century of celebrity gossip and political scandals but rather momentous global changes such […]
Read our full Market Update Week 50 Market Update Last week the main driver for UK investor returns was the weakness in Sterling, which fell -1.1% vs USD and -0.5% vs EUR. The majority of the drop came on Friday as Theresa May’s inability to win concessions from the EU created further uncertainty about the future […]
Read our full Monthly Market Update December 2018 November data indicated that the global economy continues to slow, despite a pick up in the services sector, as trade conditions deteriorate. Risk asset divergence, a theme of the previous quarter, seems to have abated, as US risk asset underperformance closed part of the gap with Europe and […]
Read our full Market Update Week 49 Market Update US equities sold off significantly last week, down -4.4% in Sterling terms, as trade war concerns weighed on American stocks, erasing the gains made in the previous week. Global equities were down -3.5% in Sterling terms, with all sectors apart from utilities experiencing negative returns. Emerging Market […]
Read our full Market Update Week 48 Market Update Last week US equities had already seen a solid rebound, up over 2% for the week in US Dollar terms, when on Wednesday Jerome Powell’s apparent U-turn on interest rates, stating that “they remain just below the broad range of estimates of the level that would […]
Having regularly declared that he will only hire the best people, Donald Trump has been rather vocal in decrying the actions the Federal Reserve has taken since Jay Powell, his choice for Fed Chair, took office. Mind you he has decried many of his appointees at one point or another, with his Attorney General Jeff […]
Read our full Market Update Week 47 Market Update Equities fell across the globe last week, with the US suffering the largest decline as technology mega-caps sold off. Facebook is down over 25% year-to-date, suffering from both idiosyncratic factors, such as an ageing user base and political scandals, and sector specific issues such as regulation. Emerging […]
The European commission confirmed that it would be starting the excessive deficit procedure for Italy. Under Eurozone rules, no country is allowed a deficit higher than 3% of its GDP, but the Italian budget proposal challenged the EU directly by assuming significantly higher growth rates. According to Commission Vice President Valdis Dombrovskis “The Commission confirms […]
Read our full Market Update Week 46 Market Update Global stocks continued their rebound this week, with both Global and European equities up +0.3%. Emerging Market equities led the pack, returning +2.5% as the slide in oil prices gave a boost to emerging market currencies. UK Stocks were hit by further Brexit volatility, hardest hit stocks […]
Read our full Market Update Week 45 Market Update US stocks continued their rebound this week, with energy and financials sectors up +1.4% and +1.5%, while the tech sector suffered as Amazon and Apple saw big falls. General Electric also fell to it lowest level since the GFC. Emerging Market equities were down -2.4% in Sterling […]
In recent years value investors in the US have watched as growth stocks have soared and provided excellent returns to shareholders. Some investors have even begun to call value investing a “dead strategy”. There are two primary schools of thought when it comes to effective stock selection: value and growth investing. There are probably as […]
The US goes to the polls today for midterm elections. Every seat of the lower chamber (the House) is up for election (as it is every two years!), while a third of the upper chamber (the Senate) will also be voted on (Senators are elected every six years). For comparison to the UK Parliament, the […]
Read our full Market Update Week 44 Market Update Global stocks rebounded this week, with Emerging Market equites soaring over 5% in GBP terms. The S&P 500 was up 1.9% and Japanese equities saw a healthy rebound returning 3.4%. US 10-year Treasury yields rose to 3.22%, but didn’t break through 3.25%, a resistance level investors are […]
When Angela Dorothea Merkel became president of her party, the CDU, in 2000, her sights were set on the highest echelons of leadership in Germany. In 2005, she followed Helmut Kohl, her mentor, and Gerhard Schroder by becoming the third post-war leader of a united Germany. Furthermore, she was the the first who grew up […]
Read our full Market Upate Week 43 Market Update Global stocks continued to slide this week, with US stocks leading indices lower, the S&P 500 falling -2.2% in Sterling terms. The NASDAQ lost -3% due to disappointing results from Tech companies and a drop in the Consumer Discretionary sector following a disappointing sales outlook from […]
Read our full MWM Newsletter October 2018 The global economy continued to grow in the third quarter of 2018 despite a backdrop of concerns over the continued imposition of trade tariffs primarily by the United States. It is apparent that any optimism a compromise between the US and its trading partners (China in particular) can […]
Read our full Market Update Week 42 Market Update US indices rebounded this week, leading the pack with a +1.3% gain after the significant correction that investors have seen in recent weeks. US stocks are climbing as tax cuts have lead to significant EPS growth and many companies, including financials, have beaten earnings estimates. The US […]
Read our full Monthly Market Update October 2018 September data continued to indicate global economic and risk asset divergence, consistent with a mature economic cycle, with USD assets rising as a result of Mr. Trump’s policies. The global economy is also diverging, with the US on a faster expansion path, while Europe and EM are […]
Read our full Market Update Week 41 Market Update Global indices suffered significant falls last week, down -4.1% in local terms and -4.5% in Sterling terms. US equities led the weak performance, experiencing their biggest losses in 8 months on Wednesday. Technology stocks were particularly affected as market participants reacted badly to rising bond yields. […]
Read our Full Market Update Week 39 Market Update US stocks dropped -0.2% in Sterling terms last week, as the Federal Reserve raised interest rates by 0.25%, with investors concerned about the elimination of the word “accommodative” from the Fed’s policy statement. UK stocks were up +0.3% and UK 10 Year Gilts were up +2.0 […]
Read our full Market Update Week 38 Market Update UK stocks traded higher with the FTSE 100 edging closer to the 7500 level, closing at 7472 point, up +2.65% for the week. In the US the S&P 500 reached new highs, returning +0.8% in GBP terms. Global stocks were up +1.5% in local terms and +1.6% […]
Read our full Blueprint Sept 2018 August data continued to indicate global economic and risk asset divergence, consistent with a mature economic cycle, with USD assets rising as a result of Mr. Trump’s policies. The global economy is also diverging, with the US on a faster expansion path, while Europe and EM are slowing down. […]
Read our full Market Update Week 37 Market Update Equities rose across the board last week, both in local and Sterling terms. UK stocks gained +0.4% with US and Global stocks up +0.1% and +0.3% in GBP terms. Other areas fared even better, as European and Japanese equities rose +0.8% and +0.6% respectively. However, Emerging […]
When my daughter was first born she had trouble sleeping and hated her cradle. So I used to hold her by to the kitchen fan (new parents take note, this works!) for about 10’, until she was fast asleep. It worked magic every time. Until it didn’t. A few weeks later she didn’t like it […]
Read our full Market Update Week 36 Market Update Equities saw sizeable falls across the board last week, both in local and Sterling terms. UK stocks fell -2.0% with US and Global stocks down -0.7% and -1.5% in GBP. Other areas fared even worse, as European, Japanese and EM equities lost -2.3%, -2.6% and -2.8% […]
Read our full Market Update Week 34 Market Update Last week and Monday was a positive period for risk assets, with global stocks returning +0.7%. EM equities gained the most, up +3.2% in Sterling terms and 4.6% in local terms, buoyed by Donald Trump’s announcement that he is prepared to resume talks with China (although […]
Read our full Market Update Week 33 Market Update Returns were mixed for equities in local terms as, aside from US equities which made a +0.7% return, all major regions fell. Similarly in Sterling all markets were down bar US and global equities which gained +0.8% and +0.1% respectively. Both European and Japanese markets returned […]
There has been a lot of coverage of Elon Musk’s musings as to whether he will take Tesla private again, having publically listed the company in 2010. Having shares listed in a company is supposed to bring benefits of increasing the ease of raising capital, while the greater liquidity and heightened corporate governance needed to […]
The US stock market has made some impressive gains year-to-date. In January the S&P 500 reached a record high of 2872.87, with the exchange falling just 10 points short of this figure two weeks ago. Apple also recently made headlines worldwide when it became the first US company to be valued at a staggering $1tn. […]
Read our full Market Update Week 32 Market Update As the pound continued its decline into last week, in local terms equity markets fell across the board aside from UK equities which made a +0.6% return. In Sterling all markets were up bar European equities, with US and global equities gaining the most with +1.9% […]
Read our full Market Update Week 30 Market Update Japanese and Emerging Market equities lead markets higher last week, gaining +2.6% and +2.2% respectively in Sterling terms. These regions had their best week in more than two months, as China’s stimulus measures buoyed the region. News of an agreement reached between President of the European Commission […]
The article was originally published in the Money Observer on the 20th July 2018 The potential breakup of the Euro has been a permanently armed grenade under the bed of the global economy for almost two decades. The recent Italian elections driving yields up and the Euro down reminded allocators that European risks have never […]
In March the Bank of England released a working paper titled ‘The distributional impact of monetary policy easing in the UK between 2008 and 2014’. For context, quantitative easing and ultra-low interest rates have been blamed by many commentators for a rise in inequality which has fermented populism in recent years. However the paper found […]
Read our full Market Update Week 28 Market Update Global markets were up last week by +1.4%, despite a mid-week blip as once again Donald Trump increased the stakes against China, threatening tariffs on $200bn worth of exports. US stocks were up +1.9% in Sterling terms, however Emerging Market equities gained the most, up +2.0%. […]
Read our full Mazars Quarterly Investment Outlook-Mind the liquidity A cautionary tale There’s an old story about a man who was marooned on a deserted island. Searching for food and water, he instead found a cave hiding a chest of pirate treasure. No water in sight though. He spent his last few days, next to […]
Read our full Monthly Blueprint July 2018 Month In Review On the face of it, June has not been an exciting month for risk assets. Developed market stocks ended the month roughly in the same place as they started it, while long bond yields were little changed. However, beginning and end figures mask not only […]
Read our full Market Update Week 26 Market Update Global equities saw a second straight week of negative performance, down -0.7% in Sterling terms, with all major indices experiencing falls in both local and GBP terms. Once again escalating trade tensions were the prime reason for weak performance, although for the second week running UK stocks […]
Read our full Market Update Week 25 Market Update Global stocks turned negative last week following two weeks of positive performance. Emerging Market equities were the worst hit, falling -2.0% in Sterling terms, as rising trade war fears also weighed on global equities, which were down -0.7%. Japan was also badly hit due to its […]
Why geopolitics now matter more In the past few years, investors and economies have grown somewhat insensitive to geopolitical surprises. Brexit, for example, did not cause the massive initial shock to either the economy or the stock markets that many analysts had predicted. Neither did Mr. Trump, whose election has sent stocks soaring by more […]
Currencies have historically been extremely volatile, and predicting FX movements is recognised as a very difficult and risky strategy. Exchange rates move on several, often unpredictable, macro-economic factors, including differences in interest rates or inflation, geopolitics or due to government intervention such as capital controls. Many funds have exposure to currency risk from investing in […]
Read our full Market Update Week 22 Market Update Markets sold off and yields rose in the first half of the week on fears about repercussions of the Italian President rejecting the populist coalition’s choice of finance minister and attempting to install a technocrat government. There were concerns that a new set of elections would […]
Whisper it very quietly, lest we jinx it: UK equities have been on a strong run recently. When was the last time you could say that? Certainly not since Brexit, which has been blamed for the poor performance versus global peers. However looking at the 4 quarters leading up to and including the Brexit vote, […]
Last year Europe was the darling of equity investors, as strong growth and improving sentiment throughout the Eurozone meant that it was only behind Emerging Markets in Sterling terms, which had a stellar year in spite of concerns about Trump, over the course of 2017. However, like Emerging Markets, Europe has had a relatively poor […]
This week I was asked to write 180 words on whether President Trump was a ‘welcome disruptor or market menace’ and how his policies can be factored into investment decisions. Despite becoming tired of the circus surrounding the 45th President of the United States, the question poses an interesting debate. Donald the Disruptor Innovative disruption […]
Read our full Market Update Week 19 Market Update Last week saw equity markets retreat in local terms, offsetting the previous week’s gains. Emerging markets sold off the most, falling -2.3% in local terms (-1.8% in GBP) weighed down by a stronger US Dollar and rising US Treasury yields. EM were followed by US equities […]
Read our full Market Update Week 17 Market Update Global equity markets were flat to positive in local terms last week, however a large sell-off in Sterling due to fading expectations for a rate hike at the next MPC meeting in May meant that returns were positive for UK investors. Global equities returned 1.6%, US […]
Read our full Market Update Week 16 Market Update Equity markets saw another week of recovery with positive returns across all regions. Returns for UK investors were boosted by a weak return from Sterling, which sold off 1.75% on a trade weighted basis as Mark Carney, the Governor of the Bank of England, made comments […]
Read our full MWM Quarterly Investment Outlook Q2 2018 The first quarter of 2018 saw a return of market volatility and a reversal of gains from the end of 2017. Despite a strong January, global equities finished the quarter down 2.1% in local currency terms, but 4.7% for UK investors as the Pound continue to […]
The NIESR GDP growth estimate for the 3 months to March was revised up to 0.2% from 0.1% in February, having been revised down from 0.3%. However the figure is still a reduction from the 0.4% growth seen in Q4 2017. Quarterly growth of 0.2% equates to just 0.8% annual growth. According to Amit Kara, […]
Read our Monthly Market Update After February ended a run of 11 consecutive months of positive, less volatile returns for equities, March saw risk assets continue to suffer as US bond yields peaked near 3% and fears of a global trade war came closer to fruition, with President Trump placing tariffs on Chinese imports of steel […]
The gender pay gap is a hot topic in offices across the country as the April deadline for companies to report their pay gap has recently passed. The gender pay gap helps to highlight major demographic changes, in terms of the age and gender, affecting the UK’s labour force. The gender pay gap In an […]
In a move that was expected, John Williams will move from the San Francisco Fed president post to take the same position at the New York Fed. He takes over from William Dudley, who late last year announced he would be leaving by mid-2018. The role comes with vice-chairpersonship of the FOMC – the Fed’s […]
With the continued escalation of threats of tariffs between the US and China, markets suffered another week of negative returns. Global equities were down -1.0% in Sterling terms, dragged lower by US equities which returned -1.8%. Emerging Market and Japanese equities also suffered, down -1.1% and -1.0% respectively. European equities were relatively unscathed with a […]
Donald Trump’s announcement of around $60bn of tariffs against China due to intellectual property violations saw markets experience large losses, as participants feared an escalating trade war. China is expected to hit back with levies aimed at industries and states where Mr Trump’s supporters are concentrated. Equity falls came despite Congress agreeing a $1.3tn spending […]
The recent tumult in equity markets arrived despite robust macroeconomic data in the US, for example the latest earnings season saw 73% of companies beating expectations for earnings. Recent data for consumers and businesses appears to support this view. The NFIB Small Business Optimism index for February rose to 107.6 from 106.9 – the highest […]
Both US equities and the US Dollar fell last week when multinational companies such as Boeing were hit as Donald Trump sought to impose new tariffs on China, pressing China to cut its trade surplus with the US by $10bn. As a result, there is an increased likelihood of a trade war between the worlds […]
“An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.” Laurence J. Peter When I was studying economics at university (not that long ago) I was taught under ‘neo-classical’ thinking, which had come to pre-eminence in response to the period of ‘stagflation’ in the 1970s. Under stagflation […]
In a reversal of the recent trend where good data is bad news for stocks, and bad data is good news, US equities rallied on Friday after the latest nonfarm payrolls report. The report showed the highest job creation […]
Donald Trump roiled markets on Friday by announcing on Twitter: He has since confirmed that he plans to impose tariffs of 25% on steel imports and 10% on aluminium. The move has been widely met with criticism, not just from Democrats but from many members of the Republican Party, including the House Speaker Paul Ryan. […]
Things have been looking up for China recently, as market sentiment towards the world’s second largest economy has finally started to take a positive turn. Since 2015, when the country’s stock market sold-off sharply and the Shanghai Composite Index crashed 45% in under two months, investors have understandably been wary of China. Redemptions in Chinese […]
US economic growth slowed slightly more than originally expected in Q4. On Wednesday the Commerce Department released revised quarter-on-quarter growth at an annualised rate of 2.5%, down from 2.6%, although this was in line with economists’ estimates. This compares to an annualised growth rate of 3.2% in Q3. The growth in consumer spending (3.8%, the […]
Markets continued their recent rocky period, with two separate events causing unease for investors. The first was Jay Powell’s first congressional testimony on Tuesday where he hinted at a faster pace of interest rate rises and stated a preference for rules based interest rate decisions. For example the Taylor Rule proscribes an interest rate for […]
The UK economy grew more slowly than previously estimated in Q4 2017, increasing by 0.4% quarter-on-quarter according to the second estimate by the ONS. This figure was a 0.1% downgrade from the original estimate. The downward revision was due to slower […]
The market sell-off at the start of February was largely attributed to fears of rising interest rates in the US, with concerns that planned increases in fiscal stimulus to an already strong economy meant the Fed was getting behind the curve. Last week various members of the FOMC, although notably not the Chair Jay Powell, […]
A “Black Swan” is a very popular notion in modern stock market commentary, yet the phrase originates from a time before the public listing of stocks. In 16th century London, people used an old Latin quote : “a rare bird in the lands and very much like a black swan“, based on the presumption that […]
Over the last month global equity markets have sold off; since the 15th of January the MSCI AC World Index has fallen -4.12%, the S&P 500 -4.22% and the Japanese Nikkei -6.0%. The UK market similarly has tumbled with the FTSE 100 plummeting -6.36% over the last 4 weeks1. With stocks cheaper compared to a […]
French ILO unemployment dropped unexpectedly from 9.6% to 8.9%. It was further proof of the strength in the French, and subsequently, the European economy. European equities lost 1.5% briefly after the US inflation report was released, with figures higher than expected. The market recovered, but the move is indicative of the factors that affect traders. […]
Despite a brief panic on Wednesday when US inflation figures came in higher than expected, stoking fears of accelerated interest rate rises, markets had a strong week across the board following 2 weeks of significant market weakness. US markets were up 4.4% in USD terms, however weakness in the currency meant the return in Sterling […]
The recent sell-off in markets and spike in volatility has so far been met by a wall of silence from the new Fed Chair Jay Powell. On the day of being sworn in, Powell faced a drop of 1,175 […]
German exports were weak for the month, up only 0.3%, but are still accelerating year-on-year. Chinese exports were stable, but imports picked up significantly, offsetting last month’s weak data. UK The Markit Services PMI dropped slightly to 53 from 54.2. The Halifax House Price Index year-on-year for the 3 months to January fell from 2.7% […]
After an unusually quiet two-year period, investors were once again reminded that volatility is part and parcel of the investment process. Global stocks suffered their worst week since 2016 and the sixth worst overall week since the recovery began in 2009. More importantly, bond prices also fell, as did other traditionally safer assets such as […]
Read our Monthly Market Update Global equity markets were positive again, registering a 5.3% performance in January, benefiting from the positive sentiment and the passing of the US tax reform at the end of 2017. The macroeconomic environment was less supportive, however, as some key indicators suggested that global economic momentum was slowing down in […]
US hiring picked up in January and wages rose at the fastest pace since the GFC. Hourly earnings increased 0.3%, resulting in an unexpected year-on-year increase of 2.9%, up from 2.7% in December (which was also revised up from 2.5%). This was on the back of a nonfarm payrolls increase of 200k, which was upwardly […]
UK Consumer confidence rose in January from -13 to -9, above expectations for the figure to remain flat. Nationwide housing prices year-on-year for January increased to 3.2% from 2.6%, the highest reading since March last year. The BOE’s concern surrounding borrowing was confirmed as consumer credit figures climbed to £1.52bn in December from £1.5bn the […]
Last week saw a 3.5% pullback for global equity markets, the first since 2016. One reason is a deterioration in global economic data. The second factor is the Federal Reserve, who’s stronger language on inflation and growth, driven by the corporate tax cuts, has made investors realise that its consensus opinion of 2 rate hikes […]
Equities suffered their worst week since 2016 and subsequently fell over 4% on Monday as concerns over rising US Government bond yields spilled over into risk assets. As of Monday, US 10Y Treasury yields were at 2.84%, having increased from 2.4% at year end, resulting in a total return of -3.1% over the period. The […]
By David Baker, Chief Investment Officer After a strong start of the year for equity markets, global stocks shed almost 5% of their value on Friday and Monday. US equities are now 6.2% below their highs, turning negative for the year, as are global equities (-6.5% from their highs). The S&P 500 is now trading […]
Last week marked a 3.5% pullback for global equity markets, the first since 2016. The move comes after a very good month, January, during which equities rose to fresh highs, gaining 5.2%, prompted by exuberance related to the US tax reform. However, the arrival of February marked fresh concerns for investors. First and foremost, economists […]
Provisional readings for US Q4 2017 GDP growth came in at 2.6%, slightly below the 3% figure expected by the market. This is an annualised figure and therefore growth for the quarter was actually only 0.1% behind expectations. Strong imports were the main reason for the surprise to the downside, subtracting 1.1% from the growth. […]
Dollar weakness persisted last week as ambiguous messaging from the US Government confused investors. Headline capital goods orders (blue) were robust, however the core capital goods component (red), the less cyclical of the two, has continued to weaken since September. UK Average earnings increased from 2.3% to 2.4% year-on-year for the 3 months to November, […]
Last year was very positive, both in terms of stock market and macroeconomic volatility (the volatility of macroeconomic releases). In recent weeks, however, we have noticed a deterioration in macroeconomic releases, especially in the US. Lower inventories and higher imports took a toll on GDP. More detailed data on capital expenditure also shows weakness in […]
Global equities were mostly positive in local terms last week, however a fall in the US Dollar, combined with Sterling appreciating, meant that returns for UK investors were generally negative. Weak US Dollar performance was largely due to a statement at Davos by US Treasury Secretary Steve Mnuchin being interpreted as suggesting that the US […]
The final quarter of 2017 provided investors with further positive returns to cap off an extremely profitable year for equities. Global equities added 5.6% in Sterling terms in the fourth quarter, to bring the full year return to 13.3%. Japanese (11.4%), US (7.0%), and Emerging Market (6.9%) equities were the stand out regions during the […]
German elections in November were met with cautious optimism by markets, with Angela Merkel’s CDU party gaining the most seats and seemingly in position to lead a coalition, so maintaining the status-quo in German politics. However negotiations have proven more difficult. The SDP, which claimed the second most seats, initially planned to be the main […]
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