Your Autumn Newsletter 2018

Market Overview


An increasing number of Americans, along with many others around the globe, may not agree with Donald Trump’s claims that he is responsible for the resurgence of the US economy. It is, however, difficult to deny that his policies, along with the odd Tweet here and there, are having an impact on global financial markets.

The S&P 500, America’s primary stock exchange, reached an all-time high on the 29th August, rounding out a run of positive market growth that has officially become the longest bull market on record. But looking back further over the last 3,500 days, the market has been forging its upward trend since early 2009, long before Trump’s term in office commenced.

Not wanting to be pessimistic – there is a natural tendency to wonder, when is it all going to come to an end?

Throughout 2017 the global economy found itself in an unusual period of synchronised growth, but in this last quarter the first indications were that markets are moving back out of sync. This does not necessarily mean we are closing in on the end of the global bull market, just that investors may want to be a little more selective than they have had to be in recent years.

“Volatility has returned to global equity markets in 2018, presenting investors with attractive opportunities.”

When the UK voted to leave the European Union back in 2016, it had been a long time since we had seen newspaper front pages dominated by talk of global trade deals.

Little did we know that within two years barely a day would go by where talk of import tariffs and fraught trade negotiations would dominate headline news and financial markets around the world.

As trade deals are thrashed out around the globe, we now wait for each new shred of information suggesting brinksmanship may be coming to an end. Yet all the talk of trade deals is starting to bring about some key differentiators between the world’s largest economies.

The US is seemingly disengaging itself from worldwide trade and becoming more domestically orientated. Tax reforms and the strength of the US Dollar, coupled with an increase in mergers and acquisitions and share buy-backs, have all helped to boost the US market in recent months.

On the flip side is the impact on the fortunes of Europe and China, both of which, are engaging more with the wider world of talks of trade. This may be a direct result of the US approach, and whilst understandably, could lead to short-term slowdown as deals are negotiated, should, in the medium to long term, lead to stronger economies all-round.

In the UK, the Bank of England (BoE) raised interest rates in August for only the second time in over ten years. Comment from BoE governor Mark Carney that future rises would be ‘gradual’ and ‘limited’, helped dampen any potential impact on both fixed income and equity markets. Confirmation that Mr Carney will stay in post until 2020 also helps to provide consistency to the current monetary policy. 

The greatest interest to UK markets remains the impending deadlines for Britain’s departure from the European Union. August saw the UK Government publish ‘advice for people and businesses’ ahead of a potential no-deal Brexit. Guidance on items such as tobacco companies needing to source new pictures for their health warnings, due to the EU owning the copyright to the current ones, may seem to trivialise matters. However, the fact remains that whilst the chance of a no-deal Brexit is slim, should ongoing negotiations collapse, then 30 March 2019 will come round all too quickly.

Trade tensions and a strong dollar also dominated headlines in Emerging Markets over the past quarter, with Turkey in particular coming under severe scrutiny.

In what was seemingly a targeted retaliation by the US, the decision was taken to increase tariffs on Turkish steel and aluminium imports, just days after the collapse of talks about the release of an imprisoned US pastor in Turkey. The use of trade tariffs as a bargaining tool in foreign policy is nothing new, but the fallout in this instance has been widely felt – in part for the lack of sufficient reaction from the Turkish President and Central Bank.

As has been seen before, pockets of panic in Emerging Markets have knock-on effects to the entire region. Where investments lack country specific focus in Emerging Market exposure there is a trend of investors selling funds that cover the entire region, in the hopes of avoiding one or two individual countries who may be experiencing difficulties.

If, however, you take the time to step back and analyse the real impact of the relatively localised issues in Turkey, the fact that the country contributes just 0.7% to the overall value of the Emerging Markets index highlights the potential overreaction of the markets. This kind of indiscriminate sell-off across the region reiterates the increased volatility in global financial markets and the potential opportunities that this can present.