Head of Equity Research
Market Update, Chris Beckett
For those of us employed to analyse individual companies, approaching the end of the second quarter results season brings a welcome relief from the treadmill of company updates and the opportunity to enjoy a ‘well earned’ break with our families (days can start with European stock announcements at 6am and finish with the end of west coast results calls at nearly midnight). Those results updates have generally been positive, particularly for the better quality companies that we tend to favour, and made investors pay attention to the economic fundamentals of each investment. A reminder that advantaged companies can generate higher sales and profits despite macroeconomic uncertainties is always helpful.
Unfortunately the void left by the lack of corporate information has been filled with an increased focus on macroeconomic and geopolitical risks. The increased chance of a ‘double no deal’ scenario – no agreement between China and the USA or between the UK and EU – has increased the probability of trade restrictions reducing corporate profits in the future. Whilst our central view is for continued global economic expansion that would justify higher equity valuations events around Brexit, US-Chinese tariffs, protests in Hong Kong, military tension in the Gulf and several other events temper our enthusiasm at present.
Economic Update, Richard Carter
The latest economic news from the UK made for pretty grim reading, with Q2 recording the first quarter of negative growth since 2012. This was mainly driven by the unwinding of stockpiles built up ahead of the Brexit-that-never-was at the end of March, but construction and exports were also weak. In all likelihood, the UK will avoid entering a technical recession because there will now be another build-up of stockpiles ahead of October 31st while consumers still remain in good shape.
On the currency front, Sterling remains under pressure and there is little cause for optimism at the moment as we are about to enter a period of extreme political uncertainty. A vote of no confidence in the government may well be tabled right at the beginning of September although it seems unlikely that enough Tory MPs would join with the opposition at this stage.
Away from the UK, the economic news was slightly more upbeat last week with strong GDP growth in Japan and better than expected Chinese export numbers. However, the ongoing trade war between the US and China continues to hang over the global economy like a black cloud and the risk remains that Trump cancels the next round of talks scheduled for September, especially if the Chinese Yuan were to weaken further. The situation in Hong Kong is another potential flashpoint.
Looking ahead this week, we will receive plenty of economic data including UK & US inflation, US & Chinese retail sales and German GDP.
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.