With so much having been written about the Election over the weekend, we have no intention of adding more than is absolutely necessary. Despite what some seem to think, the world has not ended with the loss of the Conservative majority. And the equity market reaction would seem to reflect this – the FTSE 100 closed down a mere 0.27% on the week. Of course, the story there is the usual “they earn so much from overseas that they’re not really UK companies and a weak pound is good for them.” Fair enough but, interestingly, the more domestically focused FTSE 250 fell by only 1.16%. Added to that is the 11.49% return from the FTSE 250 over the last six months as compared to 8.24% for the FTSE100. Arguably, a bit of froth got blown off the top.
More importantly will be the coming months when we get more of a feel for consumer spending. In addition to some scaremongering over business confidence this morning, news from VISA suggested consumer spending is falling. One data item does not make a trend so in isolation this is of limited value. Should it become a trend, though, then that would be of more concern. Consumer spending is some 60% of the UK’s GDP so it matters a lot and a sharp fall could trigger a recession.
After such an unashamedly parochial focus on the UK recently, we will be looking at our overall positioning over the course of this week. Quite frankly, it will be something of a relief to get away from the political noise and to focus on the other underlying factors driving markets. We still believe there are some important themes in markets, including the resurgence of emerging economies, the increased interest in European equities and what the future holds for the US. We will share the outcome of those deliberations soon.
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