Geopolitical events drive market recovery

• Global stock markets recovered smartly in June as US-China trade tensions eased and central bank policy moved further into expansive territory.
• Gains of roughly 4% for UK equities is good but, with global equity returns of over 6%, political risks are likely to have weighed on domestic sentiment.
• Economic data remains unconvincing and has yet to confirm a stabilisation in slowing global growth.
• Examples of this include further declines in the performance of the manufacturing sector, a slower pace of job creation and falling levels of inflation.
• A decline in inflation might reveal an absence of pricing power from businesses reflecting an overhang in supply or an absence of sufficient customer demand. Neither tell a good story for the economy.
• Falling levels of inflation also reflect a weaker oil price. The oil price is highly unpredictable and volatile; it also has a significant impact on consumer and business outlays. Any oil price weakness, therefore, can be a very useful stimulus to an economy.
• The current environment has made central bank policy decision making marginally easier; growth and inflation are both under pressure and the need for more restrictive monetary policy has been removed.

A focus on stimulus

• The European Central Bank has confirmed cheap lending facilities will be made available to its Commercial Banks from September. Loans will be extended on the basis that the funds will find their way into the broader economy.
• The Federal Reserve has shifted from guiding to 3-4 hikes in 2019 (as recently as September last year) to 1-2 cuts as of today.
• Though Chinese data retains much opacity there is further evidence the leadership are ramping up for more stimulus. This can take several forms including interest rate cuts, tax cuts, increased spending and higher levels of domestic credit issuance.
• The globe’s leading policy makers are taking great strides to prevent a continuation of the current slowdown.

What next for the UK?

• No matter the ideology of a new UK Prime Minister, intentions to change the previously tabled EU Withdrawal Agreement might prove too ambitious; just as delivering a ‘no deal’ might be given Parliamentary preferences.
• Such complications raise the prospect of a general election which, itself, has a myriad of potential outcomes. Such uncertainty has done little to engender confidence from the investment community as to the attraction of undervalued UK share prices. This could well be a feature that persists until a final destination becomes clear, whenever that may be?

Period	FTSE 100	S&P 500	DJ Euro Stoxx	Topix	MSCI Asia sxJap	MSCI Emerging Markets
1M	3.95%	6.48%	7.34%	2.76%	6.04%	5.71%
3M	3.28%	6.75%	9.99%	2.55%	1.72%	3.05%
6M	13.10%	19.02%	18.72%	7.68%	11.19%	11.14%
YTD	13.10%	19.02%	18.72%	7.68%	11.19%	11.14%
1Y	1.51%	14.75%	7.26%	-2.11%	3.67%	5.53%
2Y	10.33%	29.38%	10.42%	7.35%	12.62%	12.97%
3Y	29.02%	55.58%	44.18%	32.96%	45.95%	43.33%

 

This information is for illustrative purposes and is not intended as investment advice. Any tax advantages mentioned are based on personal circumstances and current legislation which are subject to change. The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.

Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Financial Advice Centre Ltd is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances, therefore you should not rely on this information without seeking professional advice from a qualified tax adviser. The opinions expressed in this document are not necessarily the views held throughout Financial Advice Centre Ltd.