The news that the vote on the American Health Care Act had been withdrawn saw equity markets pull back. On the surface it was, apparently, because of the threat to President Trump’s economically supportive agenda. That said, some of the noise about it was a bit excessive. Given the levels markets were at, some sort of pullback had been looking increasingly likely for quite a while so it should hardly have been a surprise.
This week should, finally, see Prime Minister Theresa May notify the European Union that the UK will be leaving. The event is largely symbolic and so should not have much, if any, impact on markets. The media will, of course, go into overdrive. With two years of negotiations ahead there is a long way to go. However, there is already speculation over a slowdown in the rate of UK economic growth – just as inflation has started to pick up. This would raise some questions over which are the best parts of the UK equity market to be in. Arguably, the larger companies in the FTSE100 Index, with a value bias and higher international exposure might be preferable to those with a more domestic bias. This is something we shall be looking at over the coming weeks.
As for Europe, the positive trend of data continues. Recent purchasing managers’ indices were at six year highs last week. With German Chancellor Angela Merkel comfortably winning the recent state election, and increasing hopes that a centrist candidate will win the French elections, some of the political risk seems to have been put to one side. For now. We are still watching things closely and do not feel, yet, that all is quite as cosy as it could be.
With global growth remaining solid we are remaining overweight equities. As we have said many times before, the probability of a pullback remains, in our view, quite high since many valuations are stretched. However, we do not want to get caught out trying to micro time markets. We are very comfortable with our current positioning and are actively looking for opportunities to buy equities at lower levels.
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