Friday 6 September, 2019
Global Market View
Ahead of the Northern Hemisphere summer slowdown, July proved to be busier than anticipated with a host of themes keeping the team busy. While the bellwether S&P 500 index only closed up 0.5% for the month, it touched record highs on a number of days in July. Coupled with continued strength in the USD (the US$ index closed up 1.7% for July), the US was a clear bright spot globally. Much of this was due to a flight to safety as the US economy remains in relatively better health than many of its global counterparts. A late assist from the Federal Reserve, which lowered its benchmark interest rate by 25 bps with aggressive cuts ruled out, also served to give the dollar a late boost.
Outside of the US things were slightly murkier. Trade war tensions showed no signs of easing which is a clear hindrance to growth and is increasingly cited by companies as a risk factor/impediment to growth. Emerging markets continued to underperform. The ECB (European Central Bank) has indicated the likelihood of more easing/stimulus later this year to prop up a stagnating economy. It has been less than a year since the ECB formally ended Quantitative Easing (essentially the buying of government/corporate bonds to add liquidity and lower interest rates). This is a concern that we will need to monitor closely. Across the channel, Brexit got worse with the appointment of Boris Johnson and his mandate to leave the EU come what may by October 31st. Sterling was down nearly 4% in July and the stagnation in the UK economy continues. Certain market prognosticators list the chances of a “hard” Brexit at up to 30% but this is not our base case.
It is easy to get lost in negative news but one important bright spot in July was corporate earnings releases that were better than the market expected with guidance for the remainder of the year/2020 solid. The team will continue to closely monitor these and other themes as they develop.
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