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Weekly comment: 11.03.2019

Market Overview, Alan McIntosh

In a week of political “high noon” for the UK, there is still little clarity on the outcomes that will shape the future of the nation. Brexit is currently planned for 29th March, but some extension of that deadline seems most likely after the parliamentary voting that will take place on Tuesday and Wednesday. Markets remain of the view that nothing materially bad will occur this week, although sterling has weakened a little in the past few days. UK share prices have remained fairly buoyant, although that is arguably more to do with a global rebound since Christmas rather than local factors. All we know is what we don’t know, which is the path to the other side.

After several years of synchronous global economic growth, the world is seeing divergence once again. A sharply slowing Europe (including the UK) and weakening trends in China are being offset by a still robust US economy, albeit itself slowing down as the positive effects of tax cuts start to wear off. In aggregate, the world will still deliver positive growth this year but central banks are cognisant of this change and are adapting their policy stances accordingly. The US has paused on interest rate rises, while the European Central Bank has reintroduced cheap loans and signalled no interest rate rise this year. While on the one hand, lower interest rates and lower bond yields are supportive of stock markets, weaker economic growth makes life harder for a number of cyclical sectors. Stock-picking will become even more important in the months ahead.

Economic Overview, Richard Carter

Brexit will once again dominate the headlines this week with a meaningful vote due to take place tomorrow provided there are no last minute shenanigans from the government. If Theresa May’s deal is rejected again, then a vote to extend Article 50 is likely to be passed but there is no consensus about what this delay is supposed to be for. All permutations remain in play including no Brexit and a no deal Brexit.

Elsewhere, the news on the global economy was very mixed last week. There was a big miss relative to expectations on nonfarm payrolls with only 20K jobs created last month but it probably does not foreshadow a major slowdown in the US. The prior month had been extremely strong while wage growth also quickened and the unemployment rate fell. However, the picture outside the US is less encouraging with poor Chinese export numbers and a rather downbeat message from the ECB. Mario Draghi did announce another round of cheap bank loans, but investors worried it would be insufficient given the major downgrades to the ECB’s growth and inflation forecasts. 10 Year German bond yields have fallen back to just 0.07% amid increased talk of the Eurozone turning into Japan, i.e. stuck in a deflationary environment with sub-par growth.

This week will see the release of important US data including retail sales and inflation numbers. Philip Hammond will also provide a fiscal update in the Spring Statement but it is not likely to include any policy measures and will doubtless play second fiddle to the Brexit votes.

Investors should remember that the value of investments, and the income from them, can go down as well as up. Investors may not recover what they invest. Past performance is no guarantee of future results.

Any mention of a specific security should not be interpreted as a solicitation to buy or sell a specific security.

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