Chief Investment Strategist
Market Update, Alan McIntosh
The quarterly cycle of US earnings releases got off to a good start on Friday, with JP Morgan Chase recording the highest ever quarterly profit for a US bank. This, despite an environment of flat yield curves (which negatively impacts the profitable trade of borrowing short and lending long). Friday also saw a takeover deal in the US oil sector. Chevron made a $33 billion agreed offer for Anadarko through a combination of shares and cash, which should be earnings enhancing in a year’s time. This could kick-start another wave of consolidation in the industry. All positive for the stock market, which is getting close to its previous all-time high of late September / early October last year.
The extension of the Brexit deadline to Halloween had little effect on the UK stock market or the pound. The likelihood of a no-deal exit was always seen as low in the markets and while the deferral of “judgement day” is seen as a positive for shares and sterling, we are no closer to reaching agreement on any aspects of our future relationship with the EU, should we eventually leave. This, of course, is a negative. Those two offsetting factors leave investors in limbo for an even longer period now. Elsewhere, it looks as if we could be close to reaching an agreement between the US and China on trade relations, at which point President Trump is expected to turn his attention to Europe. Last year Germany recorded a $55 billion trade surplus with the US. Americans love BMWs it seems, but the Germans are less keen on Chevrolets.
Economic Update, Duncan Gwyther
Despite the IMF lowering its global forecast to the lowest level since the financial crisis, there was a better tone to the economic news last week suggesting the global economy is doing just fine. Good employment data in the US, reports of a pick-up in Korean exports in the first half of April and China credit growth were all better than expected. Lack of news on the US-China trade deal is still being interpreted positively by markets although the EU/autos could now be in the firing line.
The US and EU central banks remain ‘data-dependent’ suggesting limited changes to rates in the short-term, and then there was the Brexit delay which will keep markets guessing for even longer. There is a busy week ahead with industrial production and retail sales in various countries, trade figures, CPI, and for the UK, average earnings. The slight pick-up in data has seen bond yields rise a little since their low points near the end of March, but low inflation in most places means a low likelihood of significantly higher yields.
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.