November 2018 Markets in a Minute
I’m pleased to enclose our new, regular monthly edition of Markets in a Minute. We hope this will give you, insight into the factors affecting your investment portfolio value and the current volatility across global markets. At Financial Advice Centre, we ensure your portfolios are diverse - investing in a full selection of asset classes and geographically around the globe to minimise the impact of the political rhetoric and news driving this volatility. As always please feel free to contact your Adviser to discuss this article or any investment queries.
After an extremely difficult October, markets have failed to offer much in the way of a reprieve in November. Though global equities broadly moved sideways, volatility remains elevated as investors grapple with a less auspicious outlook for growth.
A look at the US market
• Despite the deterioration in economic data, aggregate conditions still do not threaten a US recession, which would be the major catalyst for a bear market.
• Investors are taking increasing notice of the maturity of the US economic cycle, after all, how much more can the economy grow with employment already at record highs and interest rates on the rise?
• This is no ordinary late cycle experience, however. Indeed, rather than “fixing the roof whilst the sun is shining”, Trump’s fiscal policy is injecting ever more stimulus into the economy.
• Bears are right to acknowledge the year over year impact of tax cuts will begin to fade in 2019, however, the path to austerity is not on the horizon. According to the IMF, through a combination of second-round effects of tax cuts, and intended spending programmes, the US government is set to be even more generous next year than this.
• Global consumers, but particularly those from the US, are also set to benefit from a falling oil price. Indeed, whilst it’s not too difficult to find points of contention with the twitter insights of ‘President T’, we would agree that oil price falls can be likened to a ‘Tax Cut’.
• Of course, one must never base a central economic forecast on oil price expectations. Only a cursory glance at the headlines will reveal the scale of supply side challenges that remain; threatening a reversal in the recent sell-off. That said, a lower for longer oil price would be a genuine boost to consumer spending power.
• As the month came to an end the US Central Bank Chair, Jay Powell, also hinted US interest rates were approaching ‘restrictive’ territory. Such a conclusion suggests interest hikes may come at an even more gradual pace, or may even take a pause. Either outcome would support an extension to the current economic cycle and postpone the need to take an overtly defensive orientation in portfolios.
The UK market in brief
• November was also a very busy month for UK politics as Theresa May concluded her negotiations with European Commission on the Withdrawal Agreement. Though the arrangement was signed off in a meeting lasting just 48 minutes with the European leadership, it seems the deal will face far more challenge in domestic political arenas.
• ‘Dead on arrival’ seems to be the strap line most pundits have used to describe Mrs May’s proposal. We think this analysis ignores the juxtaposition many MPs find themselves in fearing a failed vote might lead to an even less appetising outcome.
• Whether the deal passes first or second time, with or without tweaks, there remains a firm majority in the House of Commons to avoid a ‘No deal’ outcome. Over the medium term this is supportive for sterling and sterling-based assets relative to the rest of the world.
• It is hard to see significant upside in the pound, however, as Brexit and other lingering political risks are sure to rumble on, irrespective of the outcome of immediate Parliamentary votes.
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