Head of Equity Research
Market Update, Chris Beckett
The possibility of a global recession is one of the main uncertainties facing equity markets at the moment. Whilst not our central forecast we have to respect the signals being given by bond market yield curve inversions and central banks pivoting back towards loosening monetary policy. We have seen weakness across the manufacturing sector – company survey data is signalling sector contraction in almost all major economies.
However, the companies I research myself are global consumer staples (food, drink, tobacco, household and personal products) and luxury goods companies – stocks which are trading at record levels. Here economic data and company results have been far better – people’s ability and propensity to consume is still strong. In particular, we have seen no weakening by Chinese consumers despite the Hong Kong protests posing a threat to performance levels. In a world of 0.5% 10 year gilt yields and Brexit related currency risk, the certainty that comes from the best global consumer companies is increasingly valuable.
Economic Update, Alan McIntosh
Data from the US late last week pointed to mixed fortunes for the economy. The service sector and the consumer in general remain in good health, with disposable incomes rising and confidence positive. Employment data published on Friday however, was slightly disappointing, showing a slowing rate of job creation. Meanwhile, one of the manufacturing indicators has dipped towards economic contraction, the first such signal for nearly ten years. Putting this all together suggests that the Fed will continue to cut interest rates at its next meeting.
The Brexit farrago (as opposed to Farage go!) becomes more surreal. Twenty one Conservative MPs have been deselected and another two Ministers have resigned. A Bill blocking no deal Brexit will likely be law by the time this is published and another call for an early general election likely to be defeated. Parliament will then shut down for five weeks. If Boris Johnson does not secure a new deal on Brexit by October 19th, the government will have to request an extension to at least January 31st. This could be tested in court by a minority government intent on taking the UK out of Europe by October 31st. Still so much to play for.
Thursday sees the next meeting of the European Central Bank where it is widely expected that deposit rates will be lowered further. Some tiering may also be introduced to help mitigate the effects of negative interest rates, particularly for banks. The ECB might also announce a fresh programme of quantitative easing, although there is no consensus over this at present.
Investors should remember that the value of investments, and the income from them, can go down as well as up. You may not recover what you invest. This commentary has been produced for information purposes only and isn’t intended to constitute financial advice; investments referred to may not be suitable for all recipients. Any mention of a specific security should not be interpreted as a solicitation to buy or sell a specific security.